Loan Terms and Your Loan Amount
Before you choose the right loan with the right rate, you need
to figure out how much you can afford to borrow in consideration
of all your finances and other financial obligations. Once you
take into account all of the payments that go into purchasing
a mortgage and the costs to pay it off, you are then ready to
move ahead to figuring out what your ideal loan and loan terms
First, you will need to determine the price of the home. Next,
you will need to decide how much you are able to use for a down
payment. After you subtract the down payment from the price of
the home, you will have a pretty good idea of the loan amount
you will need.
In order to know how much to expect for your monthly payments,
you need to know approximately how much average interest and principal
will be, along with other fees and mortgage insurance. You will
probably want to get two estimates, one that is conservative and
one that is a little more presumptuous.
Just for an example of how this calculation may turn out, if
you put five percent down on a house that costs $91, 986, you
will be paying $4,599 for the down payment and will need approximately
$87,386 for the loan. You can expect your monthly payments to
be around $641 including principal and interest, with around $350
for taxes and insurance and $49 for mortgage insurance. This estimate
would bring your monthly payment to $1,040. A more aggressive
estimate may put your monthly payment at $1,120. Obviously, if
you have an adjustable-rate mortgage or other type of variable
loan, this amount would change somewhat from month to month.
Now that you have an idea of the costs, you need to make sure
your income will allow for this home and the mortgage necessary
to afford it. Now you need to figure out your monthly income before
taxes along with any other income or investments before taxes.
Also calculate all of your other loans you will be continuing
to pay off, including auto loans, student loans, rental property
loans and anything else.
Once you know all of this information, you need to take a look
at the capital market and the current mortgage rates. Next, decide
what a fair or average rate is for your desired loan. To do so
you will need to know your expect interest rate, which may be
anywhere in the four to ten percent range with the good chance
of fluctuations, as well as, the life of the loan (that you will
be responsible for the monthly payments including interest).
Always keep in mind any debt you have, along with the possibility
that you may be rejected for a mortgage if you have considerable
debt to your name. Lastly, calculate your expected taxes, both
property and property insurance. You don’t want to forget
any expenses that may arise because this will affect your ability
to pay off your loan and keep up with the changing mortgage rates.