Mortgage Calculator

Down Payment

A down payment is the initial payment you make when purchasing a home. A larger down payment can:

• Lower your monthly payments
• Reduce the total interest paid
• Help you avoid private mortgage insurance (PMI)
• Strengthen your offer in competitive markets

Common down payment amounts:

• 20%: Traditional amount, avoids PMI
• 10%: Requires PMI but more manageable
• 5%: Minimum for conventional loans
• 3.5%: Available for FHA loans
• 0%: Available for VA loans (for eligible veterans)

Interest Rate

The interest rate determines how much you'll pay in interest over the life of your loan. Factors that affect your rate include:

• Your credit score
• Market conditions
• Loan term length
• Down payment amount
• Loan type (conventional, FHA, VA)
• Points paid at closing

Types of Interest Rates:

• Fixed-rate: Stays the same for the entire loan term
• Adjustable-rate (ARM): Changes after initial fixed period
• Hybrid ARM: Combines fixed and adjustable periods

Loan Term

The loan term is the length of time you have to repay your mortgage. Common terms are:

• 30-year fixed: Lower monthly payments, more interest paid
• 15-year fixed: Higher monthly payments, less interest paid
• Adjustable-rate: Initial lower rate, can increase over time
• 10-year fixed: Highest monthly payments, least interest paid
• 20-year fixed: Middle ground between 15 and 30 years

Considerations for Loan Terms:

• Monthly budget constraints
• Long-term financial goals
• Expected length of homeownership
• Future income potential
• Retirement planning

Closing Costs

Closing costs are fees and expenses you'll need to pay when finalizing your mortgage. These typically include:

• Loan origination fees
• Appraisal fees
• Title insurance
• Escrow fees
• Property taxes
• Homeowners insurance
• Recording fees
• Credit report fees

Closing costs typically range from 2% to 5% of the loan amount.

What is DTI?

Your debt-to-income ratio is the percentage of your monthly income that goes toward debt payments. Lenders use this to assess your ability to manage monthly payments.

There are two types of DTI ratios:

• Front-end ratio: Housing expenses only (mortgage, taxes, insurance)
• Back-end ratio: All debt payments (housing + other debts)

How to Calculate DTI

DTI = (Total Monthly Debt Payments / Gross Monthly Income) × 100

For example, if your monthly income is $5,000 and your total debt payments are $1,500:

DTI = ($1,500 / $5,000) × 100 = 30%

What counts as debt:

• Mortgage payment (principal + interest)
• Property taxes
• Homeowners insurance
• Car payments
• Student loans
• Credit card payments
• Personal loans
• Child support/alimony

DTI Guidelines

• Front-end ratio (housing expenses): Ideally under 28%
• Back-end ratio (all debt): Ideally under 36%
• Maximum allowed: Up to 43% for qualified mortgages
• FHA loans: Up to 31% front-end, 43% back-end
• VA loans: No specific limit, but typically under 41%

Tips to Improve DTI

• Pay down existing debt
• Increase your income
• Consider a longer loan term
• Make a larger down payment
• Consolidate high-interest debt
• Delay major purchases
• Build an emergency fund
• Improve your credit score

Additional Considerations

• Future income potential
• Job stability
• Other financial goals
• Emergency fund adequacy
• Retirement savings
• Children's education
• Home maintenance costs
• Property tax increases

Conventional Loans

Conventional loans are not insured by the federal government. They typically require:

• 5% minimum down payment
• Good credit score (typically 620+)
• Stable income and employment
• DTI ratio under 43%

FHA Loans

FHA loans are insured by the Federal Housing Administration and offer:

• 3.5% minimum down payment
• Lower credit score requirements
• Higher DTI ratios allowed
• Required mortgage insurance

VA Loans

VA loans are available to eligible veterans and offer:

• No down payment required
• No mortgage insurance
• Competitive interest rates
• Limited closing costs

USDA Loans

USDA loans are for rural and suburban homebuyers and offer:

• No down payment required
• Lower interest rates
• Income limits apply
• Property location restrictions

Private Mortgage Insurance (PMI)

PMI is required when your down payment is less than 20% on a conventional loan. Key points:

• Protects the lender if you default
• Added to monthly mortgage payment
• Can be removed once equity reaches 20%
• Cost varies based on down payment and credit score

FHA Mortgage Insurance

FHA loans require two types of mortgage insurance:

• Upfront MIP (1.75% of loan amount)
• Annual MIP (0.45% to 1.05% of loan amount)
• Required for entire loan term
• Can only be removed by refinancing

Avoiding Mortgage Insurance

Ways to avoid or minimize mortgage insurance:

• Make a 20% down payment
• Use a piggyback loan
• Consider VA loans (no PMI)
• Build equity quickly
• Refinance when equity reaches 20%

Homeowners Insurance

Required by lenders to protect their investment:

• Covers property damage
• Protects against liability
• Required for all mortgages
• Often included in monthly payment