A question looming large in your mind during the home loan preapproval process is probably “How much will my monthly payment be?” There are a lot of factors that will play into your monthly payment amount.
Your loan amount
Obviously, if your home loan is for $550,000, your monthly payment will be higher than if your loan is for just $280,000. Think about how much home you can really afford, and consider how competitive the market is in the area where you want to live.
Even $550,000 may buy a nice home in a small town or distant suburb, but won’t go far in a highly competitive market in a major city. You may have to work with your lender to find a loan structure that lets you find the home of your dreams without breaking your monthly budget.
Your loan term
A short loan term means your monthly payment will be higher. The advantage of a short term and a higher mortgage payment is that you’ll ultimately pay less in interest, and you’ll also have your home paid off faster. This can be an attractive option if your existing monthly bills are low and you can afford a more substantial mortgage payment.
A longer loan term can make your monthly obligation much more manageable, but you’ll pay more in interest and you’ll also be paying your home loan off for two decades or more. However, if you can only afford a certain amount a month now but later you can afford more, you can make larger payments to pay down the principal of your loan more quickly and shorten the term.
Your down payment
The more you can put down, the lower your monthly mortgage payment will be and the more interest you can save over the term of your loan. If you have a substantial amount of money to put down, this may be your preferred option.
However, if you have a smaller down payment, you may have to adjust the term of your loan to spread payments out over more years. This can help get monthly payments down to a manageable monthly amount.
Your interest rate
Your interest rate will also affect your monthly payment. If your interest rate is high, your monthly payment will rise. If your credit is good and you qualify for a lower interest rate, your payment will be lower.
Your interest rate is typically tied closely to your credit score. If you can improve your credit before applying for a home loan, you may be able to lock in a good interest rate after you are preapproved and ready to make an offer.
Your PMI requirement
If you finance more than 80% of the value of your home, you’ll have to purchase private mortgage insurance (PMI.) You may be able to get your lender to pick up the cost of PMI, or pay it yourself up front. Otherwise, you may have a monthly PMI payment added to your mortgage payment.
Once you pay down your loan and build up some equity, you may be able to refinance and remove the PMI requirement. You could also possibly use the refinance to lower your interest rate, or change your loan term, all of which can affect your monthly mortgage payment.
Potential HOA fees
If you live in a neighborhood or community with a homeowners association (HOA), you may also have these fees to pay on a monthly basis. While these aren’t paid by your lender, but rather by you directly to the HOA, they do factor into the housing costs aspect of your debt-to-income (DTI) ratio.
HOAs have multiple advantages. They can ensure the neighborhood you move into has a noise curfew so you’re not kept up late by block partiers or awakened at dawn by a neighbor’s radio blaring as they wash their car in their drive. HOAs often cover some of the maintenance required, so everyone’s lawn is kept properly trimmed and landscaped.
However, you’ll need to factor in your HOA fees, and read all of the fine print when buying a home in an HOA governed area. If you are planning on improving your property with the addition of a gazebo, pool, or workshed, for example, you may have to get permission from the HOA.
In highly desirable neighborhoods, HOA fees can be stiff. You’ll need to think about this added monthly expense when calculating the cost of owning a home. Even though it’s not directly part of your monthly mortgage payment, you’ll still have to come up with the additional funds to cover the fees.
Your Sammamish Mortgage Loan Officer Can Help You Start the Preapproval Process Today!
We’ve fine-tuned the preapproval process to make it one of the easiest experiences you’ll have in the whole home buying process. Buying a home should be fun and exciting, not stressful. Get preapproved today!
Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.
Contact us if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.