When using the mortgage calculator it’s important to understand what goes into a monthly mortgage payment. This page defines each of these components. The calculator separates the payment into principle and interest, along with tax and insurance escrows. PMI only applies for loans with less than a 20% down payment. Remember this is the basic cost of home ownership and does not include utilities, maintenance, or HOA dues. For budgeting purposes many government programs look for a mortgage payment to fall within 28-31% of a Household’s monthly income.

 

Purchase Price

A purchase price is the amount a Buyer pays the Seller for their home. This excludes the down payment and closing cost associated with the sale. In today’s real estate market, many Sellers are willing to pay for Buyers closing costs, which are built into the purchase price of the home. This is called “Seller Concession”. All Buyers are encouraged to get prequalified prior to making an offer. Understanding what you can afford is critical, and the key to avoiding financial hardship.

 

Down Payment

A down payment is the amount a Buyer puts down on their home mortgage. Lenders require varying down payments depending on the credit risk of the Buyer, or type of occupancy. For example, a down payment for an owner occupied home is less than an investment/rental property. The down payment amount will dictate the interest rate and if private mortgage insurance is required. PMI is discussed on this page, and paid on loans with less than a 20% down payment.

 

Mortgage Term

The mortgage term is the length of the loan, or the time it will take for the Buyer to repay the Lender. Generally speaking, the longer the mortgage term the lower the mortgage payment. Most home loans have a 15 year or 30 year term, broken out into monthly payments. For example, a 15 year mortgage has 180 monthly payments and a 30 year mortgage has 360 monthly payments.

 

Interest Rate

Interest rates are market driven and based on demand. All interest rates fall into two categories, “fixed” and “adjustable”. A fixed rate mortgage has an interest rate that doesn’t change over the life of the loan. An adjustable rate mortgage typically has a term where the rate is fixed, and then it adjusts based on an index. To simplify, we post current interest rates for Conforming, FHA, and Jumbo Loans that are updated daily.

Rates change daily and all Lenders have access to the same interest rates. When choosing a Lender remember the old adage, “you get what you pay for”. It’s a good idea to pay for great service at a reasonable cost. Dealing with the wrong Lender isn’t worth the headache!

 

Annual Property Tax

Real estate property taxes are paid each year. The mortgage calculator assumes that taxes are paid monthly. Every home has a different tax amount based on the assessed value of the home. Generally speaking a new community lacking infrastructure or schools will have higher real estate taxes compared to a more established area. Annual property taxes are posted when doing property searches on My Buying Buddy. Sign up for your free account to gain access to the Denver MLS.

 

Annual Property Insurance

Property insurance premiums are commonly paid by the lender through the Homeowner’s escrow account. A condo policy is inexpensive and in most cases it will cost less than $150/yr. Single family homes on the other hand have higher annual premiums since the policy is based on the cost to replace to home. Most Homeowners can expect to pay approx $1200/year for hazard insurance and $2000/yr. or more for higher end homes.

 

(PMI) Private Mortgage Insurance

Private Mortgage Insurance (PMI) is required for Homeowners who put less than a 20 percent down. Homeowners have the right to cancel PMI when they pay the mortgage to 80 percent of the original purchase price or appraised value of the home. If a Buyer looks to put 20% down, PMI will not apply. PMI may be removed if home prices rise or home improvements increase the value.

 

First Payment Due Date

When a Homeowner purchases a home, the first mortgage payment isn’t due for 30 to 60 days after the close date. Think of it this way, when a Buyer closes on a home the interest is prepaid through the month end. Then the first payment is due 30 days later. I.E. – Close date of April 15th. Interest at closing is prepaid through April 30th. The first payment is due 30 days later on June 1st.

 

Conforming Loans

A conforming loan is also known as a conventional loan. A conforming loan must fall under the loan limit set by Fannie Mae and Freddie Mac. Mortgages that exceed this limit are considered jumbo loans or non-conforming. Currently FHA loans are the most attractive loans for Homeowners.

 

FHA Loan

The most popular loan in today’s marketplace is an FHA loan. They are insured by the Fair Housing Administration and have fewer guidelines for Homeowners to follow. FHA loans are recommended for Homeowners who have recovered from foreclosure and those who have rebuilt their credit. The minimum FICO score for an FHA loan is 600. FHA loans require a minimum 3% down payment and no more than 6% in Seller Concession. VA or Veteran Administration loans offer similar terms available to US veterans.

 

Jumbo Loans

These loans have higher interest rates since lenders consider jumbo loans higher risk. A loan is considered “jumbo” when the amount borrowed exceeds the maximum conforming amount set by Fannie Mae and Freddie Mac. Jumbo loans have the tightest lending requirements and require borrowers to be highly qualified.