For house hunters who will be financing the purchase of their home with a mortgage, El Paso Times guest columnist Raul Amaya offers the key to home mortgage financing:
Simple math.
That’s what it comes down to. To save time, prospective mortgage applicants should first get pre-qualified by a mortgage lender before starting to look at homes. It’s free and takes much less time than you think.
The following mortgage “Rules of Thumb,” the total monthly house payments, which are slightly on the high side, are based upon current mortgage rates, a good credit score, and an acceptable debt-to-income ratio.
A mortgage calculator offers easy number-crunching, but for our purposes, when calculating the amount your gross annual income will allow you to borrow, multiply your gross annual income by 2.5.
If you earn $50,000 per year, 2.5 times $50,000 equals a $125,000 mortgage. Add to that the down payment and one has the price of home one can afford.
What would the total monthly house payment be on a $125,000 mortgage? The “Rule of Thumb” for calculating that, which includes principal and interest payments on the home mortgage, property taxes, mortgage insurance (if you need it) and homeowners’ insurance premiums, is as follows:
Divide the mortgage amount by 100. Thus on a $125,000 home mortgage loan, the total monthly house payment would be about $1,250.
Most big-ticket items require people to finance the items in installments, so many people think in terms of monthly payments. So if a home buyer wants to know the price of a home that a given total monthly house payment would afford him or her, multiply the mortgage payment one can afford by 100.
Suppose someone wants their total monthly house payment to be $900. Using this Rule of Thumb yields a $90,000 home by multiplying $900 times 100.
How much money would you need to earn annually to afford a $900 monthly house payment on a $90,000 mortgage? To calculate that, divide the home mortgage loan amount of $90,000 by 2.5, which in this case equals a $36,000 qualifying annual income.
Many times, home buyers can purchase a home without a down payment. Still this doesn’t mean that one can get a home without any expenses.
For instance, on a $100,000 home loan, with a $1,000 total monthly house payment, requiring a qualifying gross annual income of $40,000, the closing costs would be about $3,000.
A $100,000 home loan, with a 30-year term, at a 5.85 percent annual interest rate, will cost a borrower about $112,379 in interest.
If a mortgage borrower made the first payment in January, one year later upon reading their annual mortgage statement he/she would discover that of the $7,079 paid in mortgage payments $5,816 went to interest, and a mere $1,263 was applied to pay down the principal, leaving a balance of $98,737.
This is the consequence of financing a large sum of money over an extended period. Still, the benefits of ownership (equity accrual, appreciation, income tax deductibility of mortgage interest and property taxes) beat renting in nearly all cases.
SOURCE: El Paso Times
If you are thinking about selling or buying a home, or are in the market to refinance a home loan, you probably know the importance of mortgage rates.
After all, it is important to not only find a home in your price range, but also to obtain a home loan or home equity loan that fits in your budget.
What you might not realize is that mortgage rates vary in different parts of the country, even within a single state, as well as from one mortgage lender to the next. You don’t have any inherent right to the best rates - a private company is going to make that call.
The process of qualifying for a mortgage can be a frustrating, stressful and exhausting experience. The best thing you can do to help yourself is get started before you even get started shopping around. By that, we mean experimenting with a mortgage calculator and finding out a rough idea of what you can afford?
This tool, which is readily available online, will give you a little introductory assistance in discovering what your mortgage payments will be. A mortgage calculator helps you estimate a number of things:
- The current mortgage rates
- The term of your mortgage loan
- The amount of the home loan you are receiving
- The amount of your down payment
- Property taxes and insurance
- The area where you live or want to live
- The points you pay (or choose not to pay) on the mortgage
Based on how much money you have to put down, how much you make a year, and how you would like to pay your mortgage loan, you can calculate what the expected payment will be based on the points, interest rates and length of the loan.
You can alter any of those numbers to receive different estimates and get idea of what to expect. This is why a mortgage calculator offers a great way of interchanging the various factors that play into your monthly payment.
Calculators are not guaranteed to be accurate - nor are their estimates binding - but they offer a free and easy way to get a grasp of what you can expect to pay before you go ahead and meet with a mortgage broker or lender.
Having a firm idea of what you want to pay - or even a basic idea - gives you a leg up in what can often be a tumultuous process for inexperienced borrowers. It’s something to bear in mind.
When you’re wondering about qualifying for a mortgage, your first thought is obviously whether you can make the monthly payments - and what those payments even amount to.
According to the Denver Post, getting an accurate mortgage calculation isn’t as easy as some people try to make it.
For consumers using an online mortgage calculator to see what they might owe on a new home loan deal, the problem with your payment numbers comes out in the form of property taxes and homeowner’s insurance, which usually don’t get factored in, but which can add a hefty chunk to the monthly payment.
In many cases, property taxes are calculated using a mill rate, which means you are taxed a certain amount per thousand dollars of assessed value. If you owe a mill rate of 20 on a $300,000 home, that’s $6,000 a year - or a whopping $500 a month that the mortgage calculator didn’t tell you about.
Be sure, when using a mortgage calculator, that you factor in the costs of first and second mortgages, plus taxes and hazard insurance, resulting in a more realistic idea of the bottom-line cost.
Also, be sure if you are taking out an interest-only mortgage or an adjustable-rate mortgage, that your mortgage calculator shows the size of payments a consumer would make down the line, not only right now.
