Most people wanting to buy a home with a mortgage usually have two major concerns: How much will the interest rate be, and can I afford the monthly payments? There are many good online mortgage calculators that can assist you in making these important financial calculations when you are deciding to buy a home.

There are handful of very good online mortgage loan calculators that are available today. Most mortgage calculators have many of the same features; this one is good for illustrative purposes so you understand how to use these important financial tools. This mortgage calculator runs a formula to determine what your principal, interest rate and duration of your loan will be. You then will know how much you will pay every month. Calculating what your monthly payments may be is only the first step. It is important to understand other things about mortgages to ensure that you are making a good financial decision.

How Much Can I Afford?

A good mortgage calculator online helps you to see if you can buy your home. But making the decision about whether you can afford it is more complicated. Generally, most new buyers can afford a house that costs from two to 2.5 times their gross yearly income. Per this standard, a person who makes $100,000 per year can afford a first-time mortgage of $200,000 to $250,000. But this is just a general rule of thumb. Next, you need to look at personal factors that involve looking at your finances and how you choose to live.

For example, buying a 4,000 square foot house with a pool may be doable according to the mortgage calculator, but you could end up house poor – this means you can afford the mortgage, but you cannot afford the other expenses that go with home ownership.

Some people decide to be house poor because they think their income will go up over time from promotions and raises. This will in theory make their mortgage more affordable over time.

But before you decide to be house poor, you should consider these issues before you get a big mortgage:

  • Income: When you think about how able you are to pay a mortgage, you should ask if you are relying on two incomes to pay your bills. Do you have a stable job? Can you find a job easily if you were to lose your current one?
  • Lifestyle: Can you change your lifestyle to buy a more expensive home? You may not have the extra money anymore to go out to eat and to buy yourself luxury items.
  • Risk tolerance: Will having this big mortgage keep you from sleeping at night?

Criteria for Mortgage Lenders

From the perspective of the lender, the ability to afford a home depends upon these factors:

  • Front end ratio: This is the percentage of your yearly gross income that goes to paying the mortgage. Generally, your total mortgage payment should not be more than 28% of your gross income. You may find a lender that will allow you to have a 30% ratio here.
  • Back end ratio: This calculates your gross income required to cover all debts. Generally, your back-end DTI should not go over 36% of your gross income.
  • Down payment: Putting down 20% ensures you will not have to pay mortgage insurance on a conventional loan, but you can put down less money with many loan programs. It is helpful to use the online mortgage calculator to input different down payments to see how your monthly payment will be affected. Putting down less money makes it easier to get into the home, but you will have a higher monthly payment because you are borrowing more money.

Top Ranked 8 Mortgage Calculators Online

  • The Mortgage Reports – You have to love the home affordability calculator that TMR offers to online visitors at no cost.
  • Fannie Mae – This government sponsored enterprise offers a refinance calculator to help uncover potential monthly savings.
  • HSH – These guys always provide reliable mortgage calculators for consumers without the hassles.
  • Investopedia – We like this home finance calculator because it very straight-forward.
  • MortgageCalculator.org – This a popular choice for loan calculators if you are considering a FHA mortgage.
  • Nerd Wallet – They offer an easy to navigate mortgage calculator for home buyers. Get the monthly payment estimate and see lender options for free.
  • Zillow – Check out Zillow’s popular refinance mortgage calculator to estimate monthly payments and find advertising lenders.
  • Realtor.com –  This website provides a simple but effective home loan calculator at no charge.

Other Factors to Consider

As you are playing with the mortgage calculator, you can use different interest rates to see what your monthly payment could be. The rate of your loan will vary based upon current market conditions. Rates in March 2018 are still in the low 4’s, but it is possible that rates could edge higher this year as the economy improves and housing market heats up. Many financial experts think you should lock in your rate soon if you do not want to end up paying more.

You also can try different loan terms in the calculator. Most people get a 30-year mortgage because it has lower monthly payments. But you will pay much more in interest. If you can swing it financially, try to qualify for a 15-year mortgage so you can pay off your loan much sooner than a 30-year loan. The payment is at least 30% higher, so use the calculator to determine if you can afford it.

Using home loan calculators such as the options listed above can help you to determine if you can afford to buy your dream home. But be sure to look at the other factors mentioned here to decide if you can really afford it.

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