How to Evaluate Monthly Property Payments

Figuring accurate property payments takes a little extra work.

With all of the tools available online geared to potential home buyers, it might seem easy to go to a website, plug in a few numbers and find out your monthly mortgage payment. However, a lot of these calculations leave out the extra expenses that come along with homeownership such as homeowner's insurance, property taxes and annual maintenance. To determine an accurate and correct depiction of your monthly payments, you need to do a little more work.

Instructions

1. Use an online mortgage calculator to come up with a baseline for your monthly payment; this baseline will include only the principle and interest paid to your mortgage each month. Using the calculator, amortize the loan over 15 or 30 years, depending on the monthly payments you can afford.

2. Add in private mortgage insurance, or PMI, a required fee on FHA or conventional mortgages, equivalent to 1/2 of 1 percent. For example, if your mortgage payment is $1,000 per month, multiply 1,000 times 0.05, which equals $50.00. Figure your new monthly mortgage payment with PMI added in. Based on the example, the payment is now $1,050 per month. Note that PMI isn't a requirement on all FHA or conventional mortgages, such as those where the borrower pays 20 percent of the sales price in a down payment, and that PMI isn't a constant during the entire life span of a loan. Once you've achieved 20 percent equity in your property, you have the option to apply for cancellation of your PMI. Regardless of down payment or equity, however, 20 percent is the magic number. Until you've reached that threshold, factor PMI into your payment.

3. Account for homeowner's insurance. Get homeowner's insurance quotes from a licensed and reputable homeowner insurance provider. Note that the average homeowner's insurance policy ranges from $600 to $1,200 annually. For example, if your homeowner's insurance policy was $800 per year, divide that by 12 months to find the monthly payment: 800 divided by 12 equals 66. In this example, your homeowner's insurance payment would be $66.00 per month. Using the payment example in Step 2, your mortgage payment of $1,050 dollars per month is now $1,116 per month.

4. Calculate property tax. Note that even though property tax is typically a monthly deduction added in to your mortgage payment, it's not part of your principal and interest payment or amortization of the loan; most mortgage companies automatically deduct your property taxes each month, place them in an escrow account and then pay the property taxes in full every calendar year. For your own calculations, visit the city clerk's office and request the tax records of the property you intend to purchase for the prior tax year. For example, if the property taxes were $2,500 per year, divide that by 12 to find the monthly payments of $208.33. Using the ongoing example, your mortgage payment that was $1,116 per month is now $1,324.33 per month.

5. Incorporate maintenance expenses. You may not be able to accurately predict the cost of maintenance expenses on a home, but a good rule of thumb is to anticipate 1 percent of the home's value toward maintenance costs annually. Although maintenance costs aren't part of your mortgage payment, you should still consider these expenses when determining the overall cost of ownership. For example, on a property that sold for $200,000, your maintenance contribution of 1 percent would be $2,000 per year, or $166 per month. This would mean that your true cost of ownership on his property is approximately $1,490.33 per month with all costs factored in.

Tips & Warnings

• Even though online mortgage calculators don't often have a comprehensive report on monthly payments and affordability for property, licensed mortgage brokers can provide you with a good faith estimate with these calculations in only minutes.

• Get a homeowner's insurance quote from the same company who provides your car insurance, as they usually offer customer loyalty discounts.

References

• CNN Money: What Will Your Mortgage Payment Be?
• How to Buy a House: Figuring the Monthly Payment on a Mortgage
• Realtor.com: How Do I Get Rid of My PMI?