Buying a home is one of the most significant financial decisions you will ever make. But once the loan is closed and you have your keys, can you afford your monthly mortgage payment? As you begin shopping for homes, it is crucial to understand how mortgage payments work so you can calculate what you can afford when shopping for homes in Pennsylvania.
From the first moment you contact us at Penn Street Mortgage, we will work closely with you to understand your financial situation and present loan products that meet your needs. With nearly two decades of experience, we are here to help homeowners across Pennsylvania in the home buying process.
If you are wondering how to calculate your monthly payment, here are some tips and tricks to help you understand how much real estate you can afford.
How to Calculate Your Monthly Mortgage Payment
A mortgage payment is made up of many more things than just the cost of the home. Each month your payment will factor in interest, property taxes and insurance. To calculate your monthly payment, you must understand these terms and how they play a role in your overall loan.
Loan Amount: The total amount of money you borrow from a lender to purchase your home. This is usually the amount of your home minus a down payment.
Interest Rate: The cost your lender will charge you for borrowing money in the form of a percentage.
Loan Term: The overall length of time you have to repay the loan amount, which is usually between 15 and 30 years.
Property Taxes: Your local government has a property tax on your home, which you can pay through your monthly payment. This is based on the assessed value of your home.
Once you understand each of these terms, you can run a few numbers in a Pennsylvania mortgage calculator to understand how much your total monthly payment will be.
What Monthly Payments Can You Afford?
When you work with a lender, one of the first things they will factor into your mortgage approval is your overall debt-to-income ratio, sometimes abbreviated as DTI. Essentially, this is a way to decide how much of your total income is devoted to already existing debt. This calculation tells how much extra money you have to afford a monthly mortgage.
Most lenders like their calculator to show a DTI ratio of 43% or lower to approve you for a competitive mortgage.
If you want to calculate your DTI ratio, add up all your monthly debt payments. This includes student loans, credit card bills, medical bills or other outstanding debts or loans you might owe. Then, add your total mortgage payment to that sum and divide by your income. From there, you will get a percentage to determine if your DTI ratio is above or below 43%.
If you want to avoid messing around with any math, you can use a mortgage calculator, like the one on our site, to understand what your monthly payment will be. With a customizable interface and instant results, you can easily see what kind of principal and interest you will be paying every month.
Additional fees you might have to pay every month
As you are calculating your monthly payment, do not forget about a few other added fees that you will have to factor in when considering what kind of housing you can afford. Owning a home comes with more than just a monthly payment — you also have to maintain and keep up with the home!
Added costs of home ownership include:
1. Homeowners Insurance: Just like car insurance, your homeowner’s insurance will protect you against any damage or incidents that happen to your home. Whether it is a fire or a tree falls on your house, most mortgage companies require you to have homeowners insurance to approve you for a loan.
2. Private Mortgage Insurance (PMI): Unless you’re putting down 20% of the home’s purchase in a down payment, you’ll have to pay PMI every month. This protects the lender in case you cannot make payments and default on the loan. However, once you pay off 20% of your loan, this will get taken off, and your monthly payments will decrease.
3. Upkeep and maintenance: When you own a home, you are your own landlord. That means a leaky faucet or a crack in the wall requires you, the homeowner, to fix it. This ongoing maintenance can add up each year, so make sure you factor in these costs when estimating your expenses.
At Penn Street Mortgage, we will work with you to clearly outline all these added costs and walk through ways to get your payment down. We advise a larger down payment or adjusting your home search to find a cheaper house. With the national average price and median price of homes continuing to rise year over year, finding affordable home prices in Pennsylvania can be tricky.
That is why we are committed to finding you the most competitive mortgage rate, so you can get more house for your dollar. Plus, since mortgage rates change every day, understanding your home loan value also can change.
We do everything we can to help you find the lowest possible monthly payment!
We know that the mortgage process can be confusing with so many different numbers, terms and factors involved. We will work closely to understand how your home price and down payment impact the interest rate and work to present you with the most competitive offers available.
Our goal is to help you find the right mortgage — no matter what. If you have questions about your loan amount, interest rate, property taxes, or housing costs, call us. Whether you are a first time home buyer or an experienced investor, calculating your payment amount is the foundation of the mortgage process.
We are here to help. Give Penn Street Mortgage a call today!