Determining Your Mortgage Payment

When buying a home, one of the most important factors is price. How much you can spend on a home depends on how much cash you can put down on a down payment, and how much money you can borrow. Before you begin looking for a home, seek pre-approval, based on credit and income, from a lender. Additionally, determine what you, personally, are comfortable paying. Your lender will be much less familiar with your lifestyle and future plans, and therefore will not consider some pertinent factors when approving you for a loan. Are you saving up for a family? Do you travel often? These are just a couple of questions you should ask yourself when generating your housing budget. To estimate your ideal mortgage payment, you can assess your current comfort level with your rent payment and look at your monthly income and expenses.

As a homeowner, your housing payment includes:

• Principal 
• Interest 
• Property taxes 
• Homeowners' insurance. 

Additional expenses:

• If you put less than 20 percent down on your home, you will have to pay mortgage insurance. 
• At least 1 percent of the home price should be set aside for maintenance and repairs.
• Some homeowners need to pay homeowner association dues (HOAs) or condominium fees. 

Lenders will look at your debt-to-income ratio when approving a loan. Most lenders won't approve loans with a ratio higher than 41-43%. You can use a mortgage calculator to help determine your debt-to-income ratio. Essentially, you'll want to divide your gross monthly income (all income documented by paystubs or tax returns) by your monthly debt payment (new housing payment and minimum monthly payment on outstanding debt, such as a credit card, a car loan, or child support).

Aside from income and debts, lenders will also look at:

• Assets
• Downpayment
• Credit score 
• Job history 

Your mortgage payment depends on your loan term and interest rate. A shorter loan term generally has a lower interest rate; however, it also means higher monthly payments. Interest is also affected by credit score. A higher credit score means a lower interest rate. Ultimately, a good lender can evaluate your personal circumstances and make recommendations for a loan program based on your individual financial needs.