Buying a house can be an exciting time especially if you’re a first-time homebuyer. As with any major purchase, you’ll want to conduct some research to make sure that your investment is suitable for your particular needs. That means you need to find out as much as possible about the property and surrounding area (including the community, neighborhood, schools, traffic and road conditions, crime rate, taxes, comparable home values, etc.) before you go looking for your dream home.
The next step is finding a home that meets both your personal needs and your financial situation. A mortgage calculator can be a very effective tool in determining how much mortgage you can qualify for. A mortgage calculator can also keep you from over-extending yourself financially and taking out a mortgage loan you can’t afford.
When you meet with a mortgage lender, they will take into consideration your monthly income and your total monthly expenses ― including current debt obligations (credit cards, student loans, auto loans, etc.) as well as potential housing expenses (mortgage insurance, property taxes, homeowners association fees, etc.) ― to determine what type of loan you qualify for.
You should have all your personal financial information ready and available when you sit down with a mortgage lender. But even before you meet with a lender, you can use a mortgage calculator to get an idea of what you can afford.
MORTGAGE CALCULATOR: How Much Mortgage Might I Qualify For?
The “How Much Mortgage Might I Qualify For” mortgage calculator can help you determine what size loan you may be able to obtain. Using this mortgage calculator can also assist you in preparing to meet with a lender. [See related article “Preparing to Meet with a Mortgage Lender”]
How to Use the Mortgage Calculator in 5 Steps
Step 1 ― Under the “Income” section of the mortgage calculator, enter your combined gross annual income. This includes wages, tips, bonuses, and any other regular income that you receive. If you are applying jointly for a mortgage, enter the total annual income for both parties.
Step 2 ― Under the “Monthly Expenses” section of the mortgage calculator, enter your minimum monthly credit card payments and your car payments. Also enter any other fixed monthly debt expenses that you have, such as student loans or medical expenses.
Step 3 ― Under the “Loan Information” section of the mortgage calculator, you will need to provide figures regarding the mortgage loan you hope to obtain. This includes your down payment (as a percentage of the home’s sale price or a dollar number), the mortgage interest rate, and the loan term (in months or years).
Step 4 ― Under the “Payment Information” section of the mortgage calculator, enter the cost of your monthly insurance premiums (including mortgage insurance and homeowners insurance) and any monthly association dues (i.e. HOA fees) you may be required to pay. Also enter the annual property tax for the home, which you can verify by asking the real estate agent or contacting the local assessor’s office. [See related article “What Home Buyers Should Know About Property Taxes”]
Step 5 ― Click “Calculate” to see your results.
The “How Much Mortgage Might I Qualify For” mortgage calculator will generate two different sets of results for you. The first set of figures estimates how much you can afford based on a medium credit rating. The second set of figures estimates what you can afford based on a good credit rating. [See related article “Your Credit and Your Mortgage”]
While your mortgage lender may come up with slightly different numbers, using a mortgage calculator is a good way for you to prepare for mortgage application.