If you’re planning to get mortgage for a home, you’ll need to ask yourself, how much mortgage can I afford?
In this post, I’ll sharing the key considerations for you to figure out how much house and mortgage can you afford with a payment of $1,400 per month.
How much mortgage can I afford (with a payment of $1,400)
While most people just want to know the monthly payment, that’s not enough to make a good mortgage decision. There are multiple points of consideration here:
- Your cash on hand
- The mortgage terms (length of mortgage, interest rates)
- The length of time you will live in the home
But we are here to talk about how much you can afford on a budget of $1400/month for your mortgage.
Loan to Value Ratios (LTV)
The cash you have on hand determines your loan to value ratio. LTV can play a big role in buying a home. If you do not have 20% to put down, or 80% loan to value, mortgage insurance will likely be required making your payment higher.
If you are able to put a down payment to bring the loan to value below eighty percent, you could avoid paying mortgage insurance, which may allow you to increase the loan amount with a purchase.
Calculating estimated mortgage payments
If you obtain a conventional 30-year fixed rate mortgage, at an annual interest rate at 4.875%, and a mortgage loan amount of $264,800, your monthly principle and interest payment would be $1,400 each month (a mortgage loan amount of $227,000, your monthly principle and interest payment would be $1,200 each month). But you will also owe taxes and insurance so most want to know the principle, interest, taxes and home insurance payment (PITI) payment.
Principle and interest payments
As mentioned above, there are still some additional monthly payment expenses to consider before you decide you can afford a mortgage payment of $1,400 with the example above.
You’ll need to determine what your taxes and insurance payment is in addition to the principle and interest payment. When you pay a mortgage payment that includes principle, interest, taxes and insurance in one monthly payment, it is called a PITI payment.
Check out these mortgage payment scenarios:
If you are looking at a home priced at $285,000 and you are putting 20% down ($57,000) on a 30 yr term at the interest rate of 4.875 with annual property tax of $2,850 and insurance of $1,100, The monthly PITI payment would be approx $1,536.
If you are looking at a home priced at $285,000 and you are putting 3.5% down ($9,975) on a 30 yr term at the interest rate of 4.875 with annual property tax of $2,850, home insurance of $1,100, plus mortgate insurance of $264/month, The monthly PITI payment would be approx $2,048.
If the home is in an association, you will want to consider that expense as part of your payment as well.
Easily Calculate Mortgage Payments
With Sarah’s home search app, you can calculate monthly payments including principle, interest, taxes and insurance (plus association dues!). Just click on the home you like, scroll to the bottom and enter your down payment and interest rate. Tada!
Work with a Local REALTOR
Working with a local real estate agent is a valuable asset when buying real estate. Agents work closely with title companies, mortgage lenders, inspectors, appraisers, and so on. A REALTOR is a real estate agent that is held to a higher standard of ethics and a REALTOR with the CRS (Certified Residential Specialist) designation has achieved and maintains the top industry certification.
If you’re thinking about buying or selling, start by contacting a local CRS REALTOR. They can give you direction to get started, resources to find our how much mortgage you can afford, and get set up with listing alerts for the market you’re interested in buying or selling.
Find a Trusted Local Mortgage Company
To better understand how much mortgage you can afford it is best to contact a local lender or mortgage broker to discuss your options. The information I’ve provided in my here gives you a helpful starting point to begin your research for buying a home or condo. Your loan officer will be able to discuss your qualifications based on your credit, cash on hand and how long you plan to stay in the home.
Here are some videos discussing mortgages with lenders:
After evaluating what you can buy, you may want to visit my article on Rent vs Buy.
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