How To Calculate Your Home Mortgage Payment Estimate

Your home mortgage estimate is based on your annual income, down payment, monthly spending, loan type, and current average APR. Things I should have known.

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To determine the amount you can afford to pay every month for a home, we begin by taking a look at the amount you earn (compensation, wages, tips, commission, and so forth.) each year before taxes. Also, buyers should combine their income when searching for a home together.

Monthly Spending 

In the review of your monthly expenses, we can more precisely determine how much money you have left to spend on a mortgage. Consider prior obligations (auto loans, student loans, credit cards, and so forth.), repeating payments (insurance, utilities, memberships, and so on.), groceries, and even savings that would not go toward your home loan when figuring your monthly spending.

Loan Type

There are several home mortgage loans, but the most commonly used are fixed-rate and adjustable-rate loans.

  • A fixed-rate home loan has the same interest rate for the entire loan duration. Because of this, your monthly payment will be the same year after year, even for long-term loans, such as 30-year fixed-rate mortgages. There are two main benefits to this mortgage loan type.  The stability of the loan, and they are easy to calculate your total interest up front.
  • An adjustable-rate mortgage (ARMs) has interest rates that can change or adjust over time. Typically they start at a lower interest rate than a fixed-rate loan and hold that rate for a select number of years before changing interest rates from year to year. Therefore, this loan type is referred to as a “hybrid.”  For example, if you have a 5/1 ARM loan, you will have the same interest rate for the first five years, and your interest rate will adjust every year after that. The main benefit of an adjustable-rate loan is starting with a lower interest rate.

Pros and Cons: adjustable versus fixed-rate home mortgages

  • The main benefit of an adjustable-rate loan is starting with a lower interest rate.  Cons – The Interest rate and monthly payments can rise over time.
  • The primary benefit of a fixed home loan is that the rate and monthly payment never change.  Cons – You will pay for the stability through higher interest charges.

    VA Loans

The U.S. Department of Veterans Affairs (VA) offers a loan program to military service members and their families.  The federal government guarantees these loans. Since this loan is guaranteed, the VA will repay the lender for any losses that may result from a borrower’s default.  A major advantage of this program is that buyers can receive 100% financing for purchasing a home. No down payment whatsoever. Speak with an agent who is certified in the VA Loan process.

     USDA/RHS Loans

The United States Department of Agriculture (USDA) offers a loan program for rural buyers who meet certain income requirements.  The program is managed by the Rural Housing Service (RHS), is a part of the Department of Agriculture. This type of home loan is offered to rural residents who have a steady, low to modest income and are unable to obtain housing through conventional financing.

Loan Term and Interest Rate Options

The monthly amount of your mortgage payment depends on the loan term (duration) and interest rate. Generally, a longer-term loan will have lower monthly payments but at a higher interest rate, so you’ll end up paying more money overall. You can build up your credit or save for a larger down payment to qualify for a lower interest rate. A lender can also help determine a financial plan to obtain the best loan payment and rate.

APR (%)

Annual Percentage Rate (APR) is a number to help you calculate the total cost of a loan. In addition to the interest rate, it considers the fees, rebates, and other costs you may encounter over the terms of the home loan. The APR is figured by the Federal Government prerequisites and is required by law to be stated in all mortgage loan estimates. This enables you to compare different types of mortgages from different money lenders to determine which is the right one for you.

Annual Property Tax (%)

As a homeowner, you’ll pay property tax either once a year or as part of your monthly loan payment. This tax is a percentage of a home’s assessed value and varies by area. For example, a $500,000 home in Fulshear, taxed at a rate of 1.159%, translates to a payment of $5,795 annually.  Property tax in Texas is calculated on the home’s assessed value, the amount typically can change mightily once a home is sold, depending on how much the home increased or decreased in value.

Monthly Mortgage Payment

When determining how much home you can purchase, we estimate how much you will pay each month toward your mortgage. Your monthly home mortgage payment will include principal and interest. The home mortgage can also include property taxes, homeowners’ insurance, homeowners’ association (HOA) fees, and private mortgage insurance (PMI) if your down payment is less than 20 percent. Additionally, it’s a great idea to calculate one percent of your home price for home repairs, upkeep, and maintenance.

Down Payment

The typical rule of thumb is to pay 20 percent of the home’s sale price as your down payment, although Federal Housing and Urban Development loans (FHA) require as little as 3.5 percent. Your down payment will reduce the total amount of your mortgage loan, so the more money you put down, the more expensive a house you can buy. At the same time, by putting more money down to decrease your mortgage payment each month. Use the mortgage calculator to see how your down payment affects your home affordability estimate and your monthly mortgage payment.

Greater Houston Homes For Sale in Your Price Range

We then determine the max price you would be pre-approved for, so we can determine which homes for sale you can purchase in your desired locations in Greater Houston.  Property taxes rates around Katy, Fulshear, Richmond, Houston, and others play a big role in your buying power. The tax rate of each subdivision can influence your home mortgage payment drastically.  The example above gives an extremely low tax rate. For example, a $500,000 house for sale in Fulshear, taxed at a rate of 3.3618%, translates to a payment of $16,334 annually versus the $5,795 annual stated above.

Credit Scores

Though we don’t factor credit scores (FICO) in our home Mortgage Calculator, it is an important factor in qualifying for a loan and determining interest rates. Generally, the higher the credit score, the lower the interest rate for most loans. This means your total payment will be lower. Even lowering your interest rate by half a percent can save you thousands of dollars.


Topic: How We Can Calculate Your Home Mortgage Estimate and Loan Types

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This page explains the different types of home loans available in 2018.  This is only a brief overview of each type. Contact us today. Terra Point Realty encourages you to do your research beyond this website, and Education is King when making great decisions as a home buyer.