by Bill Baum of First Fidelis, LLC
Mortgage Calculator—Helpful hints…
Before you call a realtor and seriously dive into the home search process, you should have a degree of confidence regarding how much home you can afford. Knowing this will sharpen your agent’s focus and yield greater home search results.
Most of us were not born with an innate knowledge of mortgage amortization schedules. Thank goodness there are sites and apps available to help us navigate the complexities of mortgage math. But, before you go grabbing for your smartphone, please keep in mind it’s easy to overlook key variables in the mortgage calculation process, regardless of which app or site you choose.
At First Fidelis, LLC we often recommend the following to our mortgage clients:
- Find a good program or app (I prefer the Qualifier Plus IIIx app). Caution: Many, if not most, online mortgage calculators are clever marketing gimmicks to snare you into a premature credit check and set the mortgage loan hook. Using an app will get the job done and help keep your personal information safe.
- Know your budget. Before you begin entering numbers into the app’s variables, be true to yourself regarding just how much of a monthly payment you can realistically afford.
- Check your current FICO scores (Credit Karma app is great but not 100% accurate)
- Guesstimate your desired home price and enter it as a starting point into your mortgage calculator app.
- Research interest rates online and accept that there will be upward “adjustments” to your rate beyond the usual low-ball quotes you’ll see. There are many facets to determining what your actual rate will be–down payment percentage, FICO score(s), income, W2 or self-employed, liquid assets, bankruptcies, liens, student debt, length of time on the job or in your profession, credit card debt, car loan(s), etc.
- Here’s the link to a Fannie Mae site addressing interest rate adjustments: https://www.fanniemae.com/content/pricing/llpa-matrix.pdf
- Determine if you’ll be paying PMI (private mortgage insurance). Different lenders have different programs. As a general rule of thumb, a 20% or more down payment (or equity accumulated if you’re refinancing) removes the PMI issue.
- Conservatively estimate your annual homeowner’s insurance obligation. The best way to do this is to contact an insurance agent for a ballpark quote based on homes in your desired area which meet your general criteria. A good rule-of-thumb is to assume approximately $6 per thousand dollars of the home price. For example: If you’re expecting to buy a $250,000 home, multiply 250 X $6 = $1,500 per year or $125 per month. Obviously, this number can vary depending on your location, etc.
- Determine how much of a down payment you’ll comfortably make and subtract that from your anticipated home price. Naturally, this will give you your loan amount.
- Decide on your loan term. Most home buyers prefer a 30-year fixed but, depending on your circumstances, you may choose to go with a shorter duration loan or an ARM (Adjustable Rate Mortgage). Study up on the risks associated with ARMs before committing to one!
You now may begin your home price interpolation process in earnest. By varying your variables (home price, loan amount, etc.), you’ll zero right in on that home price sweet spot that matches your monthly payment budget.
Okay… so… after sending a nice hand-written note to your 7th-grade teacher who taught you the concept of interpolation, you’ll be ready to begin the pre-approval process with a reputable lender.
Mr. Baum is a mortgage loan originator with First Fidelis, LLC in Overland Park, Kansas. Bill has over 30 years experience in the financial services industry. Bill can be reached at (913) 269-7500. This blog entry is for educational purposes only and should not be interpreted as a business solicitation.