Here is a link to the calculator: https://www.zillow.com/mortgage-calculator/
You can also download the zillow mortgage app on your phone but be aware that sometimes the numbers jumble together for HOA and property taxes (not recommended for those who want to a more accurate breakdown).
1. Home price: pretty self explanatory
2. Down payment: only put the downpayment you would LIKE or PLANNED to put down (vs all that you have available in life to put down). You can avoid PMI (private mortgage insurance) if you put at least 20% of the price of the home down. However PMI is the least of your worries if you’re later bankrupt due to life happening and not having the appropriate reserves.
Make sure that in addition to your downpayment, you have an emergency fund with no less than 6 months minimum of your new SOON TO BE monthly expenses (with new monthly real estate expenses included from the results of this calculator).
And how are you going to get 6 months worth of monthly expenses saved? You’re going to rent for below 25% of your gross monthly income for a few years, (or find a place like a parents residence where you can pay near nothing), pay off your consumer debt, sacrifice and even invest potentially (if your horizon is 5 years or over).
Note: Yes, its true – FHA will generally allow 3.5% down payments and conventional loans 3% down.
3. Loan program: taking out any loan is stupid but if you’re going to take out a loan, stick to 30 year fixed. No need to take out a 15 year loan, you can create the equivalent yourself. And stay he unholy hell away from adjustable rate mortgages (ARMs). You’ve been warned.
4. Interest rate: use 3.6% if you’ve followed the BKF student loan method, have a great MORTGAGE score and you’re using FHA. Use 4.1% if you’ve followed BKF and you’re going with a conventional loan (calendar year 2016).
5. Advanced: ALWAYS click on “advanced”. Always.
6. “Include taxes/ins”: Always check this box.
7. Property tax: you can check your local county registrars office for the current property tax or google what it is in your specific city/area. Leave it pre-populated at 1.2% if you need to come back and add actuals later.
8. Home insurance: Commonly known as hazard insurance, most lenders require insurance to provide damage protection for your home and personal property from a variety of events, including fire, lightning, burglary, vandalism, storms, explosions, and more. Common rule of thumb is to take the price of the house and multiply it by .0025 to get the annual insurance amount.
Place that annual insurance amount into this field.
9. Include PMI: ALWAYS check this box even if you are contemplating using 20% down. If you do put 20% into the calculator, PMI (private mortgage insurance – diff than home owners/hazard insurance discussed in step 7) will disappear from the final calculation anyways.
10. HOA dues: this is where the magic happens. Since most online calculators either dont have appropriate fields in which to include your maintenance and repairs or they do but the calculator is incredibly user unfriendly, this is the section where we place in what I like to call “the bankruptables”.
These numbers are part of the overall group of numbers most dummies who say “why rent when you can just go buy something and pay the same??” always seem to magically omit. Since people forget to add these costs into their calculations, as soon as they get hit with them, they start going on credit cards. Once the credit cards are maxed out, a 2nd mortgage/line of credit is taken out on the house to help manage them. Pretty soon, costs to pay the HELOC and the credit cards are eating so far into your cashflow you have no choice but to try to file chapter 13 or 7 depending on how likely it is to lose your house according to state specific rules.
Rule of thumb: take 1-2% of the home’s price and set that aside for yearly maintenance (maintenance includes utilities which are much higher in a single family home, gardening, air filters, reglazing wood floors, actual HOA payments if you have them etc etc). Then take another 1-2% for REPAIRS which include fixing water heaters, repairing roofs, toilets, garage doors, plumbing and on and on.
Eg. A $500k house at the LOW end will have 1% ($5,000) for maintenance that needs to be set aside as well as 1% ($5,000) for repairs. Combine them ($10k) and divide by 12 months to = $833.
No you will not have these exact costs every month but this is the number you need to place in your buffer fund so when these expenses DO come, you’re prepared.
11. Bonus: once the calculator gives you the final monthly tally of costs, you can take that final monthly total and subtract what you show for property taxes each month. The savings from taking the mortgage interest tax deduction normally roughly equates to the amount of property taxes paid monthly – so those two normally cancel out during tax time.
Again, a link to the calculator is here: https://www.zillow.com/mortgage-calculator/
Always remember, in general a condo will have the lower end range of all these expenses but then again they dont really appreciate in price as much. A single family home (especially an older 100 year old one) will be at the higher range of these numbers, and have price appreciation but then you’d best be prepared to spend a lot a lot of time dealing with all the maintenance.
There are always tradeoffs in life. A townhouse will bring most people into the best of both worlds. But thats only if you actually do the calculations and don’t go into any of this “house poor” in the first place.
Suggestion: consider getting a mortgage quote and pre-approval from http://www.rocketmortgage.com. Currently they’re the best things smokin in this space.
Now you know.