What Will My Payment Be?

By
Real Estate Broker with Diane O and Friends - Benchmark Realty 290309

Ok, you are ready to get out of the apartment living and into your own home...but what price house should you look for? Where do you start? Well, you start with knowing your expenses...all your expenses. Basically you will need to know what you are spending your money on and what if any expenses you can cut out or reduce.

What lenders look for

The general rule of thumb formulafor home buyers who are able to provide at least 10% of the purchase price as a down payment:

  • Housing Expense = Mortgage payment (Principal and Interest) + Taxes + Homeowners Insurance + HOA fees should not exceed 28% of your gross income.
  • Total housing and other debt - The payments on all debts, normally including long-term debt such as car payments, student loans should not exceed 36% of monthly income.
Here's how the numbers work
Let's say you make $3000 gross monthly income.
$3000 x 28% = $840 which would be your allowable housing expsens
$3000 x 36% = $1,080 total housing and other debt expenese

So how does that translate into a house price?

You can use a spreadsheet program to figure out the payments on a loan.Open up your trusty spreadsheet software, and type in the following formula in a cell:

=PMT(A%/12,B,C) Instead of typing the letters A, B, and C, use these figures instead:
A = Interest rate of the loan. Note that the formula divides it by 12 because you want the monthly interest rate, not the yearly interest rate.) B =Number of months you'll be making mortgage payments: 180 for a 15-year loan, or 360 for a 30-year loan. C = Amount of the loan. This is the price of the house, minus the down payment, plus closing costs (if you're rolling the closing costs into the loan).
Note that the result is a negative number. Don't worry about that. If it bothers you, put a minus sign between the = sign and "PMT". Here's an example. Let's say our home costs $90,000. We're putting 5% down ($4,500), so we'll only need to borrow $85,500. But we're rolling the closing costs ($4,000) into the mortgage, which takes it back up to $94,000. Our interest rate is 4.25% and it's a 15-year loan. So we've got: =-PMT(4.25%/12,360,94,000) And our answer is $462.42 a month. But wait, your mortgage payment also includes taxes and insurance. Your agent will be able to supply the yearly amount of the tax, and it is also listed on many MLS listings. To find the cost of insurance, call an insurance agent and get a quote. Don't call your insurance agent until you have a specific house in mind, as each home is different. The amount you pay is also based on your credit score. Let's say that taxes are $1441 year and insurance is $600/year. That's $2041/year together, or $170/month. So your total monthly mortgage payment is $632.42($462.42 from what we figured earlier, plus $170 for taxes and insurance.) One more thing: If you put less than 20% down, you'll probably have to pay for Private Mortgage Insurance (PMI). PMI generally costs about 1/3700th to 1/1500th the price of the home. (On a $94,000 home, you'll pay $25 to $63/mo. for PMI).

A How to Guide on Making a Budget Check out the How to Budget section of BetterWaysToday.com. Their website provides e three convenient ways to use our No-Cost Budget Plan: A) Download their free Microsoft Excel file: How-To-Budget.xls. This is the recommended method. All of the instructions and forms are included and the forms are fully customizable. This is a very convenient way to record and save all of your information from month to month. B) Use the free online interactive forms, included in each step below and in the right-hand sidebar. Note: You can customize the dates, descriptions and figures on these forms and print your results but you cannot save the data. C) Print and use their PDF version forms. These forms are read-only: How To Budget Instructions | How To Budget Forms  

Greater Nashville and Surrounding Area Real Estate Specialist – Diane O and Friends

  We at Diane O and Friends are Realtors who know the market. When you are ready to Buy or Sell Property in Greater Nashville then you are ready for the Greater Nashville Real Estate Professionals Diane O and Friends. For more information about Diane O and Friends and our real estate services please fill out the online contact form or give us all call.   Office: 615-371-1544 Diane Cell Phone: 615-406-2184 Mandy Cell Phone: 615-477-6959 Fax:615-472-7931  

Remember, It's not home without the O. Diane O and Friends

 

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Benchmark Realty,318 Seaboard Ln., Ste 115, Franklin, TN  615-371-1544
Diane Osowiecki, license #290309 cell - 615-406-2184  email  diane@dianeo.us
Mandy Buchholz, license #309437 cell - 615-477-6959  email  mandybuchholztn@gmail
Bob Osowiecki, license #325031  cell - 615-878-3902 email  bobointn@gmail.com
Heidi Buchholz,license # 327613 cell - 615-351-0172 email heidibuchholztn@gmail.com

 

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Comments 3 New Comment

Rainmaker
127,312
Michael Thornton
Nashville Area - Photography & Videography
RadnorLake Video

Good morning, Diane. That is a tough question! Wouldn't the best answer be - One you feel comfortable with? 

September 04, 2011 10:50 AM
Rainmaker
164,559
Diane Osowiecki
Greater Nashville Real Estate
Diane O and Friends - Benchmark Realty

Absolutely! But so many folks say they are looking for a house that is $300,000 and they have no idea what the payment would be, or if the lender would loan them the money.

September 04, 2011 10:54 AM
Rainer
51,977
Carla Wade

I like Michael's answer, "One you feel comfortable with?" And one you can afford!

Diane, you did a great job explaining everything.  

September 05, 2011 11:01 AM
Rainmaker
164,559

Diane Osowiecki

Greater Nashville Real Estate
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