As you can see, even small differences in how much you pay monthly can make radical changes in the total cost of a loan.
What our mortgage calculator tells you about your PITI
PITI breakdown: Principal, interest, taxes, and insurance are included in your mortgage payment. See the table below for different loan terms and their tradeoffs with a $360,000 loan at current interest rates.
A few things are worth noting about the PITI calculations included in our mortgage calculator:
• Principal and interest calculations apply to 30-year and 15-year fixed-rate terms. Inquire with your lender regarding 10-year, 20-year, or 25-year fixed-term options, as well as ARM loan programs.
• Property taxes can vary annually as the tax authorities in your area have the ability to adjust tax rates. This could result in fluctuations in your PITI payment.
• Homeowners insurance premiums have the potential to increase, so it's advisable to regularly compare rates and be prepared to shop around, particularly if you notice a significant rise in your premium.
• Cancellation of PMI is possible as lenders typically mandate it when your home equity is less than 20%. As the value of your home rises, you can inquire with your lender about available options to eliminate your PMI.
• HOA fees are not included in your PITI payment. While you are required to pay dues in an HOA community, lenders consider them for mortgage qualification purposes only. You will directly pay the HOA fees to the association.
How much can you afford to borrow?
Lenders determine your borrowing limit by evaluating your debt-to-income (DTI) ratio, which compares your total debt, including the new house payment, to your monthly earnings. Our mortgage calculator follows conventional loan guidelines, usually capping the DTI ratio at 45%. However, exceptions may be considered up to 50%.
Example Calculation: Here's a simple example to help you determine if you can afford a mortgage. Let's assume your total monthly debt, including the estimated mortgage payment, is $2,500, and your monthly income before taxes is $6,000.
$2,500 monthly debt payments divided by $6,000 monthly income = 41.67% DTI ratio
Since the conventional DTI ratio maximum is 45% to 50%, you likely can afford this payment.
You can adjust the DTI ratio on a home affordability calculator to get an idea of home prices that fit within your budget.
CONVENTIONAL RATE CHANGES FOR FOR HIGH-DTI AND OTHER LOANS IN 2023
Starting from August 1, 2023, if you have a conventional loan and your debt-to-income (DTI) ratio exceeds 40%, you may encounter higher interest rates or incur a fee during the closing process. This additional cost applies to borrowers who are financing more than 60% of their home's value, with the fee ranging from 0.25% to 0.375% of the loan amount.
Other fees — not related to your DTI — may also apply if you:
Purchase an investment property, second home or multiunit property
Purchase a manufactured home or a condo
Choose an ARM loan
Choose a high-balance loan
How do I lower my monthly payment?
Try one or all of the following tips to get a smaller monthly mortgage payment:
Opt for the maximum term available. Selecting a 30-year fixed-rate loan will result in the lowest monthly payment compared to shorter-term loans.
Make a bigger down payment. By opting for a smaller loan amount, you'll experience a decrease in your principal and interest payments, while also reducing your PMI expenses. With a down payment of 20%, you can completely eliminate the need for PMI.
Consider an ARM. If you have short-term plans for your home, consider inquiring about an ARM (Adjustable Rate Mortgage). Initially, the rate is usually lower than fixed rates for a specific period. However, starting from May 1, 2023, conventional loan borrowers opting for an ARM loan may face higher interest rates or an additional fee at closing.
Shop for the best rate possible. Based on business loan warrior’s data, obtaining quotes from three to five lenders can result in significant savings on your monthly payment and interest expenses throughout your loan term.
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