Finding a new home is like finding a piece of your future. Without a doubt, it is a big deal. As such, finding the best financing options is an important matter for most homebuyers. The reason for this is simple: Understanding your ability to afford a new home can say a lot about what your future may look like.
When it comes to home buying, there are a lot of numbers involved. Because it can be easy to miss some calculations, many homebuyers turn to the help of a home loan payment calculator to assist them with this stage of the buying process.
The thing is, people often find that they have questions with these calculators. If this sounds familiar, then you are in luck. Here, you will find six tips for using these home purchasing assistants.
1. Get the Mortgage Principal
Before you can begin using a payment calculator, the first thing you need to do is determine the initial amount of your home loan. This number is your “mortgage principal.” This is the total amount that you end up borrowing after subtracting whatever your down payment is from the sale price of the home.
2. Understand Your Reasons For Using a Home Loan Payment Calculator
As it turns out, homebuyers use loan payment calculators for different reasons. What, exactly, is your motivation? There are several financial situations where a calculator can be helpful. These include figuring out:
- Your ideal price range for purchasing a new home
- Your monthly payments to create a new budget
- How to pay off your mortgage early
- How to get rid of mortgage insurance
3. Figure Out the Type of Calculator You Want To Use
Although you do not have to use a calculator to help you calculate your total costs, using one can certainly have some advantages. Most of all, it makes things easier by saving people a lot of time. Another one of the benefits of home loan calculator use is getting a second look at your numbers. If, for example, you or someone else have already reviewed your payments but something does not add up, this can be another great reason to turn to a different method of calculating.
Here are the common calculators you can choose from:
- Mortgage affordability calculators
- Mortgage payment calculators
- Mortgage insurance calculators
4. Do the Math
Next comes the fun part. This is where you get to do the math (or input the numbers so a calculator can do it for you). For example, to calculate your mortgage’s monthly interest rate, divide the annual interest rate by each of the 12 months of the year. To figure out how many payments you will need to make, take your mortgage length and multiply it by 12 months. For a 30-year loan, you would multiple 12 times 30 for a total of 360 payments.
If you have not already done so, now is also a good time to clarify how much you can afford to pay for a down payment. After analyzing your debt-to-income ratio and coming up with a number, you will then be able to figure out whether or not you will need to also purchase private mortgage insurance.
5. Consider Additional Expenses
In addition to private mortgage insurance, other expenses to think about outside the selling price of a new home include homeowners insurance, property taxes and utilities. While things like utilities will not be part of your mortgage, they will undoubtedly be part of your monthly budget. For this reason, it can be a good idea to get all of the numbers in front you before making a decision.
6. Use the Results To Make an Informed Decision
After figuring out what the picture of your future home financing will look like, you can then determine which lending option works best for you and your income. Some factors worth paying particular attention to are interest rates and loan types. Remember, there can be a major potential difference in long-term costs when you add in the cost of interest. Similarly, different loans come with different terms. Some will be better than others, so taking the time to compare them can also pay off.
Home loan calculators are one way you can simplify the home buying process. These tips can help you get the most out of this type of resource.