The pursuit of the American dream is the reason many of us get out of bed and go to work each day. We’re conditioned to want nice things, and the nicest thing many of us want is a home of our very own. Most adults get to the point that we’re sick of throwing our money away to live in someone else’s home, so we start the process of looking for our affordable dream home.
For many potential home buyers, the search begins online. We start looking at real estate in our area, whether through local realty companies or through websites like Zillow and Trulia. Those sites are excellent for showing you what is available, but there is a lot of truth missing when it comes to their mortgage payment estimates. Before you get yourself psyched up that you can totally afford that $400 payment that Zillow is promising, there’s some stuff you should know. There is a lot that the online mortgage payment calculator isn’t telling you, and you need to be financially prepared.
The Real Cost
Many of the mortgage calculators out there will figure out an appropriate payment based on the home price, your interest rate, and the amount you’re able to put down on a house. However, there are some added costs that new homebuyers may not be aware of that will drive that cost up quite a bit. As any financial planner will recommend if you’re serious about your home search is being prequalified for a mortgage. The bank you go through will determine what you’re able to afford, based on your income and your credit score. They’ll find an interest rate that works for you and will determine the dollar amount that is safe for you to afford. This should help to narrow down your search by filtering out the properties that are out of your price range, but there are still some costs that you’ll need to consider.
PMI –If you don’t put 20% down on your house, you’ll pay a fee known as private mortgage insurance. This secures the lender if you stop making payments on your loan. What most companies will do with PMI is escrow it into your regular monthly payments, so you need to be aware of this added cost. So if you’re attempting to secure a conventional loan and you don’t have twenty percent of the cost to put down, count on paying PMI in addition to what you figured for your mortgage payment.
Homeowner’s Insurance –While renter’s insurance may have been only an option, mortgage companies require you to secure a homeowner’s policy to protect their investment and all of your stuff. While this cost is usually nominal in comparison to the other costs you’ll accrue in the cost of a home, it’s still an added payment that is usually wrapped up in your mortgage, so plan on adding about fifty dollars into what you planned.
Property Taxes –Yep, plan on paying taxes on your house every year. Rather than putting it off and worrying about the money at a later time, many mortgage companies will require you to escrow the taxes as well. So if you’re property taxes are $2100 a year, the mortgage will split that over the course of the year and the cost will be tacked onto your monthly payment. If you were counting on saving money, don’t. Buying a home in an expensive venture, but it’s also one that will be worth it over time. You can make any changes you want, you’re not paying someone else an amount that is usually a good bit higher than their payment, and you’re making a very safe investment. As long as you keep up with the payments, that little three bedroom rancher will eventually be yours.
However, it’s not a cheap pursuit. When you see $450 on Zillow as your expected mortgage payment, just know that isn’t really close to what you’re going to actually pay and plan accordingly.