How Much Home Can I Afford?by Tim Manni
The homebuyer tax credit may be through, but mortgage rates are still enjoying their record-low status. If the expiration of the tax credit hasn’t shattered your dreams of homeownership, now is a great time to buy.
When you begin to ponder the idea of homeownership, you must first ask yourself, “How much home can I afford?”
HSH.com has a mortgage calculator just for that. Our “how much can I afford” calculator can give you an accurate sense of your price range. The calculator is simple and easy to use — just fill in the seven required fields and hit the “Click Here to Calculate” button.
Here’s how the calculator works (I’ll provide some examples):
Annual Income: Simply plug in your household’s yearly income. (ex. $90,000)
Monthly Credit Payments: Here’s the space where you enter in all your monthly bills — i.e. automobile and insurance payments, average credit card payments, student loans, etc. (ex. $1200)
Cash Down Payment: The default setting here is $20,000. Often times $20,000 doesn’t equal a 20% downpayment, and in which case the final calculation will take private mortgage insurance into account. (ex. $20000)
Property Taxes (percentage): The default setting here is 1% (1% = $1000 per year for $100K house). Let’s say you’re looking at a property worth $298,000, with annual property taxes of $6,500. To calculate the percentage of your yearly property taxes (for this calculator’s purposes), divide 298,000 by 6,500. Then, divide 100 into that number. The result is 2.18. (ex. 2.18%)
Property Insurance (percentage): The default setting is 0.5%. Until you really begin looking for a home, it may be hard to estimate what your property insurance will be. For this example, let’s use the default setting. (ex. 0.5%)
Interest Rate: While as of Friday (05/07/10) the 30-year Conforming rate was 5.01%, but to adjust for possible increases and possible adjustments by a lender, 5.25% is a fair interest rate to select. (ex. 5.25%)
Loan Term (in years): The default setting here is 30. The most common loan term on the market is 30 years. (ex. 30)
Based on the examples we provided, here is the amount of home you can afford:
House value: $ 285020 Loan value: $ 265020 Monthly Principal+Interest: $ 1463.45 Monthly Prop Tax+Insurance: $ 636.55 Down Payment 7.02 %
NOTE: Your down payment is less than 20%, so you pay PMI.
(PMI = Private Mortgage Insurance.)
That’s an extra 0.5% of your loan each year
House value: $ 270488 Loan value: $ 250488 Monthly Principal+Interest: $ 1383.21 Monthly Prop Tax+Insurance: $ 604.09 Monthly PMI: $ 112.70 Down Payment 7.39 %
Don’t forget all those closing costs and points too!