You may be surprised. Pull together the assumptions listed below and then use our handy calculator at the bottom of the page.
Your Monthly Payment
Grab your pencil. It will only take a minute.
The amount of loan principal and interest you'll pay on a monthly basis is determined
the interest rate, the higher the payments. Generally speaking, the longer the
repayment term, the lower the payments. Interest rates vary according to the type
of loan, and whether it is a fixed or variable rate loan. For purposes of comparison,
let's use a 30-year term, fixed-rate mortgage.
Check the Interest RatesThey
are available everywhere.
Find the real estate section of your local
newspaper or call a mortgage lender. You will find the figure in the top column
of interest rate charts.
Pick a PriceIt doesn't have to be exact
to work the problem.
By this time, you've probably been gazing wistfully
at the real estate ads in newspapers, or visited a couple of open houses, enough
to know approximately how much homes are listed for in your area. Pick a price.
Subtract 10 percent (for the down payment) for the total loan amount.
Example: What's the monthly
principal and interest payment on a $90,000 home at 8% interest? Subtract $9,000
and round off for a loan amount of $80,000. As you can see, the monthly payment
at 8% interest is $587.
Run the Numbers
Plug your assumptions into this handy calculator to figure out how much house you can afford.
Less Than Expected?Don't jump on it
After calculating the numbers, you might be thinking, "Wow, that's
less than I am paying now!" Okay, but don't run to the nearest real estate agency
just yet. Remember that you'll pay property taxes and homeowners insurance on
top of that figure. Tax rates are set locally and both the insurance premium and
tax payment will vary according to the cost of your home. In addition, you might
need to pay private mortgage insurance (PMI) if you put less than 20% down.
cover these expenses, multiply the purchase price by .002% (two-tenths percent),
and add that figure to your monthly principal and interest payment, just to be
safe. In the above example for a $90,000 home, that equals $180 on top of $587
for a total monthly cost of $767. Remember also the additional expenses of maintenance
On to the Lenders...
After a little self-examination,
you are ready for the professionals.
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