A home loan calculator, or mortgage calculator, can help you determine how much home you can afford when you’re exploring financing options. But before you get started with one, there is some information that you might want to know. Let’s take a look at a few of those things.

Home Buying Costs

A few things go into your total home buying costs. They may not all be the first things you consider, so it’s good to know what you can expect upfront. Here is a short review of the main home buying costs you need to consider.

Down Payment

You’re probably already aware that you’ll need some form of a down payment when trying to buy a new home. The standard amount is 20 percent of the home’s cost however, you don’t always need to put this much money down. In some cases, a good credit score, low debt, and appropriate income compared to the cost of the home you’re trying to purchase can also help you qualify for a good loan. Just keep in mind that the best loan rates tend to go to people that have at least a 20 percent down payment.

Mortgage Insurance

Another thing to factor into home-buying costs when financing a home is mortgage insurance. You will most likely have to pay mortgage insurance if you don’t provide a 20 percent down payment. The type of loan you apply for will affect how long you have to pay this insurance.

For a conventional loan, you typically only pay mortgage insurance until you have met a certain number of payments—usually enough to equal 20 percent of your mortgage. Once you have met this number, your mortgage insurance payments will go away. With an FHA (Federal Housing Authority) loan, however, you will have to pay mortgage insurance for the duration of your loan.

What is mortgage insurance? Mortgage insurance protects your lender in the case that you are no longer able to make your mortgage payments. It is more common on FHA loans because these types of loans were designed for people who may not always qualify for a conventional loan, which typically means that they may pose a higher risk to lenders.

Property Tax

Another home-buying cost to consider is property tax. This amount varies by state and could change over the period of your loan if the value of your property goes up. We’ll get into where you’ll find property tax charges during your initial home-buying costs in a minute.

Homeowner’s Insurance

Most mortgage lenders will require you to have homeowner’s insurance when applying for financing. This number is usually a factor considered in home loan calculators. Homeowner’s insurance provides you with financial relief in the event of unexpected or unavoidable damage to your home.

Escrow

Both your property taxes and homeowner’s insurance will likely be collected into an escrow account by your lender. An additional escrow cushion might also be required. These fees will show up during your initial home-buying costs, so it’s important to budget for them. Want to learn more about Escrow? Check out our blog on “What is an Escrow & How Does it Work?”

Closing Costs

The total amount due when you sign papers to claim ownership over your new home will appear as closing costs. This includes the amount you’ll owe in escrow, your total down payment, and other loan costs (like an appraisal fee, home inspection, and loan origination fees). You can expect to pay about 3-6 percent of your home’s value in closing costs, although in California that number may be as high as 11 percent.

Before you start with a home loan calculator, it’s helpful to know these things. It may also help to get a pre-approval letter online from a lender. This will allow you to have a specific budget and make a stronger offer when the time is right.

Looking for more Foundation tips and learning? Return Home here.

Published 04.14.22