Estimate your mortgage payment - Check affordability.

## Expenses when buying a home:

- **Home Price**: This is the sale price or appraised value of the home you want to purchase. The mortgage amount will be based on the purchase price less any down payment.

- **Down Payment**: The down payment is the portion of the home's purchase price that you pay upfront, rather than finance into the loan. A 20% down payment is commonly recommended, but many lenders allow down payments as low as 3-5%. The down payment reduces the amount you need to borrow.

- **Interest Rate**: The interest rate is the annual rate charged on the mortgage loan. Rates are commonly in the 3-7% range for 30-year fixed mortgages but can vary depending on economic conditions. The rate significantly impacts your monthly payment.

- **Loan Term**: The loan term is the length of time over which the mortgage will be repaid, such as 15 or 30 years. Longer terms mean lower monthly payments but higher interest costs over the life of the loan.

- **Property Taxes**: The lender will factor in property tax rates and assessments to estimate the taxes you'll owe each year. Taxes are usually paid monthly along with your mortgage payment.

- **Homeowners Insurance**: Lenders require insurance to protect against damage. You'll input the estimated annual premium to include in the payment calculation.

- **PMI**: If your down payment is less than 20%, you may be required to pay private mortgage insurance (PMI). This added monthly cost protects the lender if you default.

- **HOA Fees**: Include any mandatory homeowners association or condo fees. These are paid monthly along with your mortgage.

- **Other Costs**: You can input estimated monthly costs for utilities, maintenance, etc. to see the total monthly housing costs.

## Down Payment

The down payment is the amount of money you pay upfront when purchasing a home, reducing the amount you have to borrow via a mortgage loan. Down payments typically range from 3-20% of the home's purchase price, with 20% historically being the recommended amount.

With a lower down payment, more money is being borrowed and your monthly costs will be higher. Specifically, a lower down payment results in:

- Higher monthly mortgage payments, since more money was borrowed

- The need to pay private mortgage insurance (PMI), an additional monthly cost required when the down payment is less than 20%

- Higher interest charges over the life of the loan, since interest is calculated based on the amount borrowed

While low down payment programs exist to ease affordability, they come at a cost through higher monthly payments. Conversely, making a down payment larger than 20% can reduce your monthly costs but requires more cash up front. Most experts recommend targeting a 20% down payment if possible to keep monthly costs down while avoiding PMI.

## Interest Rates

The interest rate is the amount you'll pay to borrow the money for your mortgage. Interest rates are typically higher for longer loan terms like 30 years, and lower for shorter loans like 15 years.

The interest rate environment has a major impact on monthly mortgage costs. As of January 2024, interest rates for a 30-year fixed mortgage are around 6.77%. This is quite high historically, as rates have been under 4% for most of the last decade since the Great Recession.

With a $350,000 home loan at 6.77% over 30 years, the monthly principal and interest payment is $2,313. Compare that to just a few years ago in early 2021 when rates were 2.65% - the monthly P&I payment on the same $350k loan would have been $1,347, a difference of $966 per month!

So while low rates allow buyers to qualify for a larger loan and keep payments manageable, today's high interest rate environment means monthly costs will be considerably higher. First-time homebuyers may need to opt for a smaller loan amount or less expensive home than they could have a couple years ago.

The impact of rising rates is clear - for every 1% increase in the interest rate, the monthly mortgage payment increases by approximately 10-15%. Even an increase from 3% to 4% could add $200+ to the monthly payment. This makes it vital for buyers to lock in the lowest rate possible when taking out a mortgage.

## Loan Term

The loan term is one of the key factors that affects your monthly mortgage payment amount. The loan term refers to the length of time over which you will pay back the loan.

Typical loan terms are 15 years, 20 years, and 30 years. The longer the loan term, the lower your monthly payment will be. However, you pay more in total interest costs over the life of the loan with a longer term.

With a 30-year mortgage, your monthly payment is lower compared to a 15-year loan for the same loan amount. This is because you are spreading the payments out over a longer timeframe. However, you end up paying more in total interest costs over those 30 years.

A 15-year mortgage term has higher monthly payments but you pay off the loan much faster. This saves substantially on interest over the life of the loan. The total amount paid over 15 years is typically tens of thousands less than with a 30-year term.

In summary, opting for a shorter loan term means you pay off the mortgage faster and save on interest. But it also means higher monthly payments. You have to balance your budget and goals to choose the right loan term for your situation.

## Property Taxes

Property taxes are a regular expense that most homeowners in the U.S. must pay. Property tax rates vary widely across the country, with national average of around 1% of a home's assessed value. However, some states have average tax rates below 0.5%, while others are over 2%.

Property taxes can greatly impact the monthly costs of owning a home. Even a seemingly small tax rate increase can add hundreds of dollars per year to a mortgage payment. For example, if a $300,000 home has a 1.2% tax rate, that's $3,600 per year or $300 per month in taxes. If the rate jumps to 1.5%, it becomes $4,500 annually or $375 monthly - an extra $75 per month.

When budgeting for a mortgage, it's critical to research the property tax rates in the area you want to buy. The tax assessor's website will provide specifics for each county and city. Then you can accurately factor taxes into your housing costs when determining how much home you can afford. It's wise to overestimate property taxes in your calculations, since rates often trend higher over time. Paying attention to this key expense helps homebuyers avoid getting in over their heads.

## Home Insurance

Home insurance, also known as homeowner's insurance, is an important component of homeownership costs. The average cost of home insurance in the US is around $1,200 per year, but can vary significantly based on a number of factors.

The main factors that impact home insurance costs include:

- Location - Insurance rates are often higher in areas prone to natural disasters like hurricanes, floods, tornadoes, earthquakes, wildfires etc. Living in an urban area also may increase rates due to increased risk of theft and vandalism.

- Home value - More expensive homes generally cost more to insure because if there is a total loss, the insurance company has to cover rebuilding the entire home.

- Age of home - Newer homes often cost less to insure because they generally need fewer repairs and have modern electrical, plumbing and roof systems. Older homes may need more frequent repairs and upgrades which increases risk.

- Construction materials - Homes built with materials like brick and concrete tend to have lower premiums than those built with cheaper materials like wood siding.

- Protective devices - Having security systems, fire/smoke detectors, lightning rods etc can reduce rates by lowering risk of damage claims.

- Claims history - Frequent claims for damage will cause premiums to rise over time. Those with no claims generally get the best rates.

- Credit score - Insurers often check credit as a predictor of claims risk. Those with poor credit tend to pay higher premiums.

- Discounts - Bundling policies with the same insurer, being claim-free, having protective devices etc may qualify for discounts to reduce the premium.

The cost of home insurance can vary widely, so it pays to shop around for the best rates. Understanding these key factors can help you estimate what to budget for home insurance.

## PMI: Private Mortgage Insurance

Private mortgage insurance (PMI) is an additional cost that is often required when you put less than 20% down on a home purchase. PMI protects the lender in case you default on the loan.

With a conventional loan, if you put down less than 20% of the purchase price, your lender will require you to pay for PMI. This extra monthly cost can increase your housing payments significantly.

For example, with a $200,000 home purchase and 10% down payment, your loan amount would be $180,000. If your PMI payment is 0.5% of the total loan amount annually, that adds $900 per year or $75 per month to your payments.

PMI usually stays in place until you build up at least 20% equity in the home. At that point, you can request to have PMI canceled. This typically requires getting an appraisal to confirm your loan-to-value ratio is 80% or lower.

Paying PMI means higher monthly costs and interest charges over the life of your loan. Putting down 20% upfront allows you to avoid PMI and makes homeownership more affordable. But sometimes paying PMI can be worth it to buy sooner if home prices are rising rapidly in your area.

## HOA Fees

Homeowners associations (HOAs) are organizations that maintain and enhance residential communities. They collect monthly or annual dues from homeowners to pay for community services and amenities.

HOA fees are common expenses for properties located in condominiums, townhouses, and planned unit developments. The fees pay for maintenance and improvements to common areas like pools, playgrounds, green spaces, parking lots, hallways, and clubhouses. HOA fees may also cover landscaping, snow removal, trash pickup, and building insurance.

On average, HOA fees range from $200 to $400 per month. However, the costs can vary greatly based on the services offered and amenities. Luxury communities tend to have higher HOA fees, while bare-bones associations charge minimal dues.

HOA fees provide homeowners with community benefits and help maintain property values. However, the required monthly payments can impact housing affordability. It's important to research the HOA costs when considering a property governed by a homeowners association. The fees should factor into your housing budget.

## Other Costs

Beyond the principal, interest, taxes, and insurance payments on a mortgage, homeowners face a variety of other costs that add to the total expenditure of owning a home. These extra fees, known as "other costs" in a mortgage calculator, can include:

**Closing Costs**

When you purchase a home, there are various closing costs involved with finalizing the transaction. These may include origination fees, application fees, attorney fees, title insurance, recording fees, transfer taxes, and more. Closing costs typically range from 2-5% of the home's purchase price.

**Repairs and Maintenance**

Owning a home means you are responsible for repairs and maintenance, which can get expensive over time. Some examples of typical repair and maintenance costs for homeowners include:

- Replacing appliances like the furnace, water heater, refrigerator, etc.

- Fixing leaky roofs, broken windows, faulty plumbing or electrical systems

- Yard work like lawn mowing, tree trimming, landscaping

- Exterior painting or staining

- Pest control

- Driveway and sidewalk repairs

These ongoing repair and maintenance costs add up. Industry experts often recommend budgeting 1-3% of a home's value annually for these expenses.

Accounting for closing fees, repairs, maintenance, and other costs is important when budgeting for a home purchase. While principal, interest, taxes and insurance make up the bulk of monthly housing payments, other costs can also take a big bite out of your budget. Considering the full range of homeownership expenses helps ensure you buy a home you can comfortably afford over the long-term.