Mortgage calculator: PMI, interest and taxes
How do I qualify for a mortgage?
To qualify for a mortgage or refinance lender, shop around with several lenders. When you find one offering the best rates and conditions, make sure you meet their eligibility criteria. These relate to your income, your debt, and your credit score.
You will need to provide information about your finances, so gather documents like pay stubs and bank statements. Once you’ve found the right loan and your paperwork is ready, submit an application. For more information, or if you’re ready to go, use our form to guide you through the process of getting mortgage pre-approved.
Can I get a mortgage without credit?
Yes. Most lenders look at your credit report and your score to determine if you are eligible for a home loan. However, some lenders will work with borrowers who do not have a credit history. They may review other documents, such as utility statements, showing that you have already made payments on time.
You will need to look for a lender who performs manual underwriting and prepares financial documents such as bank statements to get approval. Find out in this guide how to buy a home without credit.
How many houses can I afford?
How much you can afford to spend on a home depends on many factors. Your down payment is important. A larger down payment means you can usually afford a more expensive home. Your credit score, income, and other debts also affect what you can borrow. However, you may not want to borrow the maximum allowed.
As a rule of thumb, experts recommend keeping housing costs below 30% of your income. This includes your mortgage, utilities, HOA fees, insurance, taxes, and other costs. Staying below this threshold ensures that mortgage payments will not compromise other financial goals. You can also discover other details to consider in our guide to determining how much home you can afford.
What does a mortgage payment include?
Your monthly mortgage payment includes:
- Main: This is the amount you pay for the loan balance each month so that your loan is paid off on time.
- The interest: This is the cost you pay to borrow. It is determined by the amount you borrowed and your interest rate.
- Taxes: Most lenders collect a payment for your property taxes each month. This money is placed in an escrow account. This is a special account reserved for you and held by a person you trust. The lender pays the property tax bill to the escrow account.
- Assurance: Lenders also charge a monthly payment for home insurance. This is also deposited. The lenders then pay your insurance bill. The goal is to protect the collateral (the house) by ensuring that the bills are paid.
What type of mortgage should I choose?
The type of mortgage you should choose depends on many factors, including your credit history, the amount of your down payment, the type of home you are buying, and your goals for your loan. For example, you can choose one:
- Conventional mortgage (one not guaranteed by the government) if you want to avoid the upfront fees.
- A government guaranteed mortgage (like an FHA, USDA, or VA loan) if you have imperfect credit or a small down payment.
- A 30-year fixed rate loan if you want predictable payments and don’t mind paying more interest over time in exchange for a smaller monthly payment.
- A 15-year fixed rate loan if you want predictable payments and want to pay the least amount of interest over time, even if that means a higher monthly mortgage payment.
These are just a few examples of different home loans. Make sure you research all the types of mortgages available before you decide.
What is the difference between pre-qualified and pre-approved?
Pre-qualifying for a mortgage involves submitting a small amount of financial information to find out what your mortgage terms are likely to be. It’s a quick process that shouldn’t affect your credit score.
Getting pre-approved involves submitting a large amount of financial information. Lenders undertake to grant a loan if your financial situation does not change and the house you want to buy meets their criteria. Pre-approval is usually required by home sellers when you make an offer, and it’s a much more complex process.
Learn more about the difference between mortgage prequalification and pre-approval before shopping for a home.
What can I expect in the home buying process?
To begin the home buying process, you’ll need to budget and make sure you’re financially prepared to qualify for a home loan and pay off a mortgage. You need to prepare the financial documents that mortgage lenders will want to review. Get quotes from multiple lenders and get mortgage pre-approval from the one with the best terms.
You may want to hire a real estate agent to help you buy properties. When you find a home that meets your budget and criteria, make an offer. Be sure to include any contingencies or conditions that need to be met, such as a satisfactory inspection. Complete the formal loan approval process for the mortgage that best suits your needs and complete your transaction.
This Homebuyer Checklist provides more information on each of these steps, so check it out before you start buying a property.
How much should you save for a down payment?
Ideally, you will make a down payment equal to 20% of the value of the property. So if you buy a house for $ 200,000, save $ 40,000.
However, many people don’t save as much for a down payment. You could potentially qualify for a conventional loan (unsecured by the government) with as little as 3% down payment. Some government guaranteed loans do not require a down payment. But if you don’t make a down payment or make a small one, you can expect to pay mortgage insurance or other fees up front.
Whether you plan to save 20% or not, be sure to see how to save for a down payment.
What documents do you need to apply for a mortgage?
To apply for a mortgage you will need:
- Proof of income, such as tax returns, pay stubs, W-2 forms, or 1099 tax forms
- Proof of assets, such as bank statements and investment account statements
- A gift letter if someone offers you gift money for a deposit
- A history of mortgage or rent payments, such as information from your landlord
- Identification, which could include a social security card and government-issued ID
Lenders may also ask for additional information, so be sure to read the documents required for home loans.
What homeownership expenses should I be prepared for?
The homeownership fees to prepare include:
- Your mortgage payment, which goes to your lender
- Property taxes, which are often added to your mortgage payment (your lender places the money in a special escrow account and then pays the taxes to your local government)
- Home insurance, which is also often added to your mortgage payment and paid for by your lender. Check out our guide to determining the amount of home insurance you may need
- Mortgage insurance, which is insurance that protects the lender against potential loss if you make a down payment of less than 20% of the value of your home
- Utilities, including electricity, gas, water, cable, and internet
- HOA dues if you live in a neighborhood or building with a homeowners association
- Home maintenance and repairs to avoid being caught off guard by unexpected expenses
You can learn more about these costs in this homeownership expense guide.
What is the difference between a 15 and 30 year mortgage?
A 15-year home loan is a home loan that is repaid half the amount of a 30-year loan. With a 15-year loan, you only pay 15 years instead of 30 years.
The monthly amount you owe is higher on a 15-year loan than on a 30-year loan because you are making fewer payments. However, the interest rate is generally lower on a 15 year loan. And the total interest charges are lower because you pay interest for less time.
Take a close look at the pros and cons of a 15-year or 30-year mortgage when deciding which one is best for you. Plus, you can explore optional 20-year or 30-year mortgages.
What advice would you give to first-time home buyers?
Here are some of the top tips for first-time home buyers:
- Save early for a down payment
- Take Steps To Improve Your Credit Score
- Budget before shopping for a home
- Find the best mortgage interest rates and loan terms
- Get pre-approved before bidding on a home
- Hire a real estate agent with solid references who you feel comfortable working with
- Research properties carefully, taking into account factors such as zoning laws and school districts
- Making an offer that protects your interests, including contingencies, such as an inspection to check for major issues is
- Save money for closing costs
For more information, see our tips for buying a first home.
Why is my debt ratio important when applying for a mortgage?
Lenders consider your debt ratio when you apply for a mortgage because they want to make sure you can afford the mortgage payments. They watch your:
- Initial ratio, which compares your monthly mortgage payments to your income
- Final ratio, which compares mortgage payments and other debts on your income
If either of the ratios is too high, your loan will not be approved. For more information on lender requirements, check out the Debt-to-Income Report and Why It’s Important.
How does my credit score affect mortgage rates?
A higher credit score can lead to a lower mortgage rate. This is because lenders will view you as a low risk borrower. A lower mortgage rate means lower monthly payments and less total interest paid over time.
A low credit rating can make it difficult to approve a loan. And lenders who agree to provide a mortgage will charge a higher rate. This is because your past credit problems suggest that there is a greater chance that you will default on your loan.
Learn more about this impact by examining how credit scores affect mortgage rates.