- 1). Determine the amount of the loan. The amount is the purchase price of the property minus any down payment you are making against the purchase price. For instance, if a home is $400,000 and you have $40,000 to put down, the loan needed is for $360,000.
- 2). Decide on the terms of your loan. There are many different mortgage products to choose from. With a fixed-rate loan, the interest rate stays the same for the entire loan. An adjustable-rate mortgage has an interest rate that adjusts after a period of time, with later payments higher than the initial payments if overall interest rates rise. With interest-only loans, the buyer simply pays the interest on the loan for a period of time before paying for both principal and interest. Balloon payments loans are where the buyer pays principal and interest on a piece of the loan before owing a large payment at the conclusion of the loan to settle the balance due. Also, these loans can be 15, 30, 35 and even 40 years. The most common loan term is 30 years. Each of these loan conditions will result in different monthly payments.
- 3). Determine the interest rate for your loan. Depending on your credit history, the amount of the down payment and the size of the loan, a lender will offer an interest rate. The higher the interest rate, the more money you'll pay the bank over the life of the loan.
- 4). Determine if you need private mortgage insurance. This is a form of insurance that most lenders will require if you have less than 20 percent equity in the home at the time of purchase. To calculate equity, one must calculate the amount of the loan divided by the value of the property. For instance, a person purchasing a $400,000 with a $360,000 would have 90 percent equity and need private mortgage insurance. The equation would read as follows:
Amount of Loan / Value of Property = Loan to Value Ratio
$360,000 / $400,000 = .90 Converted to a percentage, this is 90 percent.
The amount that a borrower would pay on private mortgage insurance is set by the lender. Also, the less equity the borrower has, the more private mortgage insurance they will pay. For example, a borrower with only 5 percent equity will pay more than a borrower with 15 percent equity. - 5). Figure out the monthly taxes associated with the assessed property value. Property taxes vary by city, state and county. However most property taxes are tied into the assessed value, which is set by the tax collector. For instance, the property value might be 1 percent of the assessed value. This means that if there was a 1 percent property tax on a home worth $480,000, then the property tax due per year would equal $4,800. Some tax assessors use something called a "mill rate." A mill rate is calculated at 1 / 10th of a cent or .001 times the value of the assessed value. So if a mill rate was .0360 and the home was $100,000 the calculation would read:
$100,000 x .0360 = $3,600 - 6). Get an insurance premium for the property. You will be required by your lender to have insurance on your home. Call and get a quote. Factors that will determine the price of your insurance will be things such as the value of the property, the location of the property, security systems and level of insurance desired by the borrower. You will receive a yearly quote that then needs to be divided by 12 to obtain the monthly payments
- 7). Calculate the monthly payment by using a mortgage calculator. It is imperative that you use a mortgage calculator which reflects the term of your loan. For example, you want to use a fixed-rate mortgage calculator for a fixed rate mortgage, and an adjustable-rate mortgage calculator for an adjustable rate mortgage. Plug in each variable into the calculator to receive your answer. Then add the answers together for your total payment.
For instance if your 30 fixed-rate loan was at 5.5 percent, you were placing 10 percent down, with property taxes of $4,000 per year, insurance of $1,000 per year and a PMI rate of .60, your monthly payment would be: $1,806.69. In this equation $83.33 would be dedicated to the homeowners insurance and $112.50 would be dedicated to PMI. If you removed those amounts the hard principal, interest and tax payment on a 30 year fixed at 5.5 percent would be: $1,610.86.
- Advertisement -
- Advertisement -