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Before applying for a home loan, use a mortgage pre-approval calculator to get an idea of what you can afford. The easiest way to get started is with The Motley Fool’s mortgage calculator.
All you have to do is fill in some information like your down payment amount and the house price to find out what your monthly mortgage payment could be.
The Motley Fool Mortgage Pre-Approval Calculator is just one of the many free online tools that can help you understand your buying profile. Before you call a loan officer, read on for more information on what determines your monthly mortgage payment.
Key factors in calculating a mortgage pre-approval
Here are some of the most important factors to consider when calculating your mortgage pre-approval.
- Purchase price
- Mortgage rate
- Mortgage term
- Annual property tax
- Annual home insurance
- Monthly HOA fees
1. Purchase price
One of the most important factors to consider is the house price, which can vary widely depending on the location, condition of the property, age of the property and seller.
In most areas of the country, homes typically cost between $ 150,000 and $ 500,000 or more. But don’t start hyperventilating: you don’t have to put down the whole sum of money when you buy. That brings us to the next factor: your down payment.
2. Down payment
An affordability calculator should also have a field for your deposit or the amount you want to prepay. As you will see, your down payment amount will directly affect the overall mortgage.
The amount of the down payment depends on the type of loan you are applying for. In some cases (such as an FHA loan) you can only deduct 3 percent.
3. Mortgage rate
You won’t know what mortgage rate you qualify for until you meet with a loan officer and get an official reading. However, it’s a good idea to play around with different numbers beforehand to see what your monthly payment might look like.
For example, according to the Fool’s advance mortgage calculator, a home price of $ 200,000 with a $ 20,000 down payment and a 4 percent interest rate versus a standard 30-year mortgage gives an approximate monthly payment of $ 1,213.93.
However, if the mortgage rate is lowered to 3.5 percent, the monthly payment drops to $ 1,163.68.
4. Term of the mortgage
It is also important to consider the repayment term that you are signing up for. The longer your loan terms, the less you pay each month – and the more you will pay over the life of the loan due to interest.
The trick in optimizing a mortgage is to get the lowest possible interest rate for the longest possible loan term. By extending the life of your loan, you can put the extra hundreds of dollars you save each month into higher-growth investments that more than make up for your interest payments.
5. Annual property tax
When determining your monthly payments, you should also consider annual property tax. Taxes change annually and vary from place to place.
6. Annual home insurance
When calculating your house costs, you should also take home contents insurance into account. Annual home insurance typically costs between $ 800 and $ 1,000.
7. Monthly HOA fees
Another factor to consider when determining your total monthly payments is potential homeowners association (HOA) fees.
HOA fees usually cover things like outdoor facilities and facilities maintenance, landscaping, and security. Some HOA fees can cost hundreds of dollars a month.
Key factors that will affect your price
Here are some important factors that can affect your mortgage rate.
Mortgage lenders will take a close look at your creditworthiness to see if you will be able to repay it. For the best credit possible, you need a credit score of 740 or higher. Anything lower could make you pay more every month.
Lenders also want to see your employment history. That way they can get an idea of your income over time. So be prepared to submit previous W2 tax forms showing your gross annual income.
Current banking history
You also need to be ready to present some of your recent bank statements. A mortgage is a lot of money, and lenders want to make sure you don’t bottom out every month.
frequently asked Questions
Here are some of the most frequently asked questions about mortgage pre-approval.
Should I consider property management when calculating mortgage costs?
It’s a good idea to factor in the cost of real estate management. These monthly expenses can vary based on the type of property you are buying and the amount of work required to maintain it.
For example, be prepared to cover up unexpected repairs like broken toilets or lights. But you should also budget at least a few thousand dollars a year for things like landscaping and routine maintenance.
Do you need to provide your annual income when applying for a home loan?
Not only do you need to report your annual income, but also your income over time.
Round up your previous years tax returns, 1099s, W2s, and other documents to help the lender get a better sense of your earnings history and overall financial well-being.
What is Mortgage Refinancing?
With a mortgage refinancing, your current mortgage is exchanged for another. This is usually completed a few years after taking out a mortgage and making monthly payments.
Refinancing your mortgage can save you potentially thousands of dollars over the life of your loan.
Can You Get A Home With Credit Card Debt Or Student Loan Debt?
When you apply for a mortgage, a lender will check your debt-to-income ratio to get a sense of how much total debt you are paying each month.
If your monthly debt payments are too high, you may not be able to get a good interest rate on your loan. If you find yourself in this situation, try reducing your debt to improve your chances of getting a loan.
What is Mortgage Insurance?
Buyers who pay less than 20 percent of a down payment are typically required to purchase personal mortgage insurance, which lenders need to cover against losses from a potential mortgage default.
In most cases, you don’t need to pay for mortgage insurance if you have at least 20 percent equity in your property.
The bottom line
Many factors play a role when buying a home. And there are countless factors that determine the total amount that you can expect when buying a home.
Before meeting with a lender, consider using The Motley Fool’s mortgage pre-approval calculator to get a better idea of what you are likely to pay. That way, you can get a better idea of the loan payment that you can afford.
Buying a home is an exhausting process. But with the right approach, patience, and determination, you will end up in a place that you love.