Is there any easy and quick way to figure out how much of a total mortgage one can generally afford based on how much one can afford to pay as a monthly payment? That is, if I pay X amount each month in rent, I can afford a house of Y*X value without increasing my monthly payment.
I’ve searched the web for Mortgage calculators, and while I can understand their desire for how long the mortgage will last and current interest rate (and can someone tell me how to find that out?) they also seem to require arcane information (Prime Weekly Bi-Section Flummox Rate or what have you) that I can’t fathom, let alone find.
There are lots of places on the web to find a mortgage calculator that doesn’t need anything more than just Principal, interest and term to determine payment amount. Here is one. To get to a principal from payment, you can simply change the principal until you approximate the payment you want. Unfortunately I can’t find a calculator to do this directly right now, but I know they exist.
Lending rates can be found simply by checking several banks and Credit Unions in your area. Right now something around 6.5% seems to be approximately what you’ll pay.
If you want to dig deeper and look at differences between fixed rate and ARM, 15 year vs. 30, etc., then I would suggest you start talking to a banker.
Also, bear in mind that the cost of a house is only partially covered by a mortgage. It would be akin to buying a car and thinking the purchase price is the only thing you’ll ever need to pay on it. You will also need to consider utilities, maintenance, taxes, insurance, etc. These can vary wildely. Once again, a banker would be a good resource to help you determine what you can really afford and can help with details of these costs for your area.
I would simply like to emphasize that monthly payments should be considered as P+I+T (not just P+I) where the P represents repayment of principal, I is payment of interest and T is payment of real estate taxes. You can compute the contribution of T on P by finding out the tax rate (per dollar of assessed value) and also the percent of market value that houses in that municipality are assessed at.
According to Homebuying for Dummies, multiply your monthly rent by 200. Once you factor in the tax savings your monthly payments will be about the same.
Also consider your homeowners insurance and mortgage insurance (PMI?) if required. I pay $675/mo for my mortgage, but then $260/mo for PMI, property taxes and homeowners insurance. The $260 goes into an escrow account and my mortgage company pays taxes and insurance from the escrow when they’re due.
This seems kinda high to me. The number it comes up with for me is over twice cost of the house I’m looking at. Granted, I’m looking near Pittsburgh where houses are dirt cheap, but still.
This guy has some good columns on this topic (including an answer to the meta-question, Why Do Different Affordability Calculators Provide Markedly Different Answers to the Question of How Much You Can Afford to Pay?): http://www.mtgprofessor.com/purchasing_a_house.htm
The rule I’ve always heard is that no more than 1/3 of your take home pay (after taxes) should go towards your mortgage. Another very rough rule of thumb is that if the house costs $150,000, your monthly payment is going to be in the neighborhood of $1,500 (just divide by 100). You can get more accurate numbers using a mortgage calculator, but for some quick and dirty numbers you don’t get much more simpler than that.
PMI can be avoided by financing 80% or less of the mortage, or by having two mortgages with different lenders. When I bought my first house, I put 5% down, financed 80% with one lender and 15% with a different one. Paying PMI is pouring water down a well. Avoid it if possible.