How to Calculate Payments for a First Time Homebuyer
Buying a home is one of the biggest financial risks and decisions that many people take. One of the most important things to consider before looking at homes is how much of a monthly payment you can afford. A mortgage payment often consists of more items than the principle and interest on the mortgage loan. Many lenders require monthly escrow payments for property taxes and insurance and, if you put less than 20 percent down on the loan, you will probably be responsible for monthly private mortgage insurance (PMI).
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Instructions
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Use an online mortgage calculator to determine the principle and interest portion of your mortgage payment by inputting the total amount borrowed for the home, the interest rate on the loan and the term of the loan. The calculator will return the monthly amount of principle and interest due on the loan.
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Obtain the current property tax rates from the taxing authority in the home's jurisdiction. Most property tax authorities post the current property tax rates on the jurisdiction's website.
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Multiply the amount borrowed for the home times the tax rate to obtain an estimated property tax expense. The actual tax may be lower if the jurisdiction offers discounts, such as a homestead exemption. Divide the annual tax amount by 12 to get a monthly estimated escrow payment for property taxes.
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Contact your insurance company and request a quote for property insurance on the home. Divide the annual quoted amount by 12 to determine a monthly estimated escrow payment for property insurance.
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Obtain the PMI percentage from the lender. Multiply the PMI percentage times the total amount to be loaned, then divide the result by 12 to obtain a monthly estimated PMI amount. For example, if your lender says the PMI percentage for your loan is .50 percent and you are borrowing $200k, and then multiply $200k times .005 to get $1k. Divide that by 12 to obtain a monthly estimated PMI payment of $83.
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Add the principle and interest payment to the estimated property tax, insurance and PMI to determine an estimated monthly payment on the mortgage.
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Tips & Warnings
If you are not certain how to estimate a monthly mortgage payment, ask your lender or real estate agent to assist you.
Until a loan has gone through the underwriting process, you can only estimate monthly payments. Monthly payments are subject to change if any of the variables assumed change from the original assumptions.
Real estate tax and property insurance can increase every year, so expect that your payment may rise over the years.
