What can you afford to pay as a mortgage?

If you don’t know, how can you find out?

You can go online and search out one of the online mortgage payment calculators. Using an adroit combination of appropriate data and knowing your goals, you will receive answers to mortgage payment questions in seconds.

For example, you can find a mortgage calculator to do the following:

• Help you decide whether or not to refinance
• How much payment would you have to make on a mortgage consolidation
• Help you determine whether it makes more sense to rent or buy
• Help you decide on how much home you can afford
• Help you decide on how much can be prudently borrowed

As with any other computer, the accuracy of what you put into it will determine the authenticity of what comes out.

Following are some of the pieces of information you will need in order to obtain answers to your scenarios:

Total cost of the home: You want to have a ball park figure on what the overall cost of the home will be

Down payment: Know how much cash you will be putting down

PITI (principal, interest, taxes, and insurance) is an acronym for four other pieces of information you will need:

• Principal: This is the true amount of the mortgage. It is the amount of the loan you will be paying off.
• Interest: This is expressed as a percentage. 5.0%, 4.0% or whatever the quoted interest rate is on the loan.
• Taxes: This refers to the property taxes homeowners have to pay. You can pay it separately (they are usually split into two payments per year) or you can have it automatically withdrawn from your payments to the mortgage holder. The mortgage holder is then responsible for making the bi-yearly county property tax payment.
• Insurance: This covers two types of insurance:
  • Home insurance- This is the protection you buy to protect you and your home from liability lawsuits, bodily injury, and property damage that occurs on the property.

• PMI (Private Mortgage Insurance)- If you make a down payment of less than 20%, you will be required to pay for this insurance. This insures the lender against the possibility of you defaulting on the loan. It usually has to be carried until there is 20% equity in the home. Then you can request the requirement be removed.

PITI are the four components that make up your monthly house payment. Make sure you account for all of them even if they are just good faith estimates when you use the calculator.

Term: You will also need to know the length of your loan. This can be anywhere from 5 to 40 years.

Debt: You will need to know your current monthly other-than-mortgage payments. This will include car notes, student loans, credit cards, etc. Normally, lenders do not want your total debt, including housing, to exceed 35% to 38% of your gross monthly income.

For housing payments only, lenders like you to be at about 26% of your monthly income.

You have enough information to play out some interesting scenarios. For example, if you wanted to see if your income was adequate to qualify for a loan, this is what you might enter:

• Desired mortgage: $100,000
• Length of loan: 30 years
• Interest rate: 5%
• Property taxes: $2,000
• Total monthly non-mortgage debt: $300

After this information is entered in the calculator, hit submit. These are the factors it will calculate for:

• Monthly principal and interest: $536.82
• Total monthly housing payment (this included property taxes and insurance): $1,003.49
• Required salary:  $34,405

This sum suggests that you could afford this house if you made at least $34,405 per year.

If you made $55,000 how much more home could you afford? The only number you have to change is the $100,000, which is the desired mortgage. Then you hit calculate. If you wanted $50,000 more home, you would need $43,607.97 yearly income, still well under the $55,000 per year you make.

You could keep playing with the numbers to develop the scenarios that make the most financial sense for you. In fact, all of the other numbers being constant, just changing the desired mortgage, you will find you can afford up to about $208,000 worth of home and still be just under your salary of $55,000.

So, gather your data and work with a good mortgage calculator.  It will give you the best chance to develop the perfect home owning financial solution for your situation.