How to Budget for a Mortgage
When most people think of budgeting for a mortgage, they determine their monthly mortgage payment. However, there are a number of other costs associated with having a mortgage and owning your home. These costs may include private mortgage insurance, homeowner's insurance and real estate taxes. Some costs of owning a home, like real estate taxes and homeowner's insurance, will not happen monthly, but you can determine how much you should put aside each month to make sure you have enough to cover them when they do come up.
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Instructions
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1
Determine the amount of your monthly payment for the mortgage itself.
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2
Determine whether you will have to pay for private mortgage insurance, or PMI. If your down payment is less than 20 percent of your home's value, you will most likely have to pay PMI. PMI usually costs 0.5 percent of the amount of the loan per year, so if you borrow 200,000, you will have to pay $1,000 per year, or about $83.33 per month.
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3
Determine the cost of homeowner's insurance. Lenders require you to have insurance to protect their loan in case of a disaster. The cost of your insurance will depend on the value of your home, how your home is built, the neighborhood you live in and the safety features in your home, such as fire alarms.
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4
Determine the cost of real estate taxes, if applicable. You can determine your annual tax bill by multiplying the real estate tax rate by the value of your home. For example, if your home was worth $220,000 and the real estate tax rate was 2 percent, you would pay $4,400 per year in taxes, so you should budget about $366.67 per month.
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5
Add the amounts found in steps one through four to determine how much you should be budgeting each month for your mortgage costs.
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Tips & Warnings
Many lenders add PMI, homeowner's insurance and tax payments into the mortgage payment and set up an escrow account for these additional expenses. Make sure that if your lender sets up an escrow account, your tax and insurance payments actually get paid.
