How much will your new house actually cost you?
An awesome tool for finding out what you're monthly payments will be is this great mortgage calculator. I have chosen the one at the bottom of this screen because it actually includes the full "P.I.T.I." cost estimates & H.O.A. considerations that many mortgage calculators neglect (Most only consider the first "P & I"). It also shows the somewhat shocking total cost of a house after paying on it for 30 years. If you're a first time home buyer, you may want to read through "PITI" explanations below. If you're seasoned, scroll to the bottom for the awesome calculator & amortization schedule!
P is for PRINCIPLE
The principle is the amount of money you are borrowing/financing. It is the purchase price minus the down payment. If the purchase price of the home you want is $250,000.00 and your lender says you a need 10% Down Payment, then your mortgage amount will be $225,000.00. In the calculator enter:
Home Value=$250,000 Down Payment=10% or 25000$ = Mortgage Amount=$225,000
I is the INTEREST rate
The first "I" in the PITI acronym is for the annual percentage rate of interest that the lender is going to charge you for the privilege of borrowing their money. To get an idea of what current rates are, a quick Internet search will get you in the ballpark. You can always a your lender too, to get a better idea. The actual interest rate will depend upon your credit score and the institution you are borrowing from. For the example, lets use an interest rate of 5%. The most common length of a home loan is 30 years, made in monthly installments. PMI is another acronym you'll see a lot from lenders. That stands for "Private Mortgage Insurance" and that is only added to the equation when you do not have at least a 20% downpayment. That is insurance for the lender in case you default on the loan. Lenders figure there is a much better chance of borrowers not defaulting if they have at least 20% invested from the start. In most cases, the PMI amount is only charged until you have paid off 20-25% of the mortgage. It usually ranges from 3/4% to 1.5% depending on the lender and market conditions. In the calculator enter:
Interest Rate = 5% PMI year = 1.5% Amortization Period = 30 Yr Payment Frequency = Monthly NOTE: for many of the fields, the calculator will give you the choice of entering a dollar amount or a percentage. Make sure you select the appropriate icon for the unit you use!
T is for Property TAXES
Many mortgage calculators neglect this cost but the local government certainly will not! You can get a close estimation of what the taxes will be for the property you are interested in purchasing. One way is to go to the Brevard County Property Appraisers website, click on "Property Search" and enter the site address of the property you are interested in. The resulting page will have a "Taxes" link at the top. Click there and you can see the taxes the owner was charged for the past few years. NOTE: Unless you have special exemptions, YOUR tax amount will be higher! Florida has a law stating that your property taxes cannot go up more than 3% per year while you own the house, even if property values skyrocket. Therefore, if someone has owned a house for a very long time, they will be paying lower than average taxes on it. When that house finally sells, the tax amount will adjust to current market values. So you may have to search on a few similar houses in the same location to get a good idea of what your taxes will be. For this example, enter $3,000.00 in the Property Taxes / year field.
I is for INSURANCE
The last "I" in the PITI calculation is for your homeowners insurance. If you are financing a home, the lender will require this before you close on the house. In Brevard County homeowner's insurance will vary greatly depending on which side of Indian River you purchase. Barrier island ("beachside") home owners insurance will often be double what mainland insurance rates are. This can make a big difference in your monthly payment! Let's use a average figure for a newer 2000 sq ft. mainland home of $1500 per year. Home Insurance / year = $1500
This calculator also incorporates "One-time Expenses" which would be your closing costs on the purchase. For a buyer, closing costs could include HOA initiation fees, surveys, appraisals and the customary buyers doc stamps and bank fees which are often rolled into your mortgage. 2-3% in this field would give a good estimate.
Finally, the HOA fees are the monthly or yearly "Home Owners Association" fees you may have to pay depending on if you purchase in a newer subdivision or not, or if you are purchasing a townhouse or condominium. BEWARE: the salt air is highly corrosive to metals and if you purchase a direct beachfront property your monthly HOA fee could be very high! (you better keep your car waxed too!) While condos and townhouses will want monthly HOA payments, subdivisions with single-family dwellings usually have a much lower annual payment. For purposes of using the calculator, divide an annual HOA fee by 12.
Now look at the "Total Monthly Payment" results in the mortgage calculator. This will give you a good estimate of what your new home will cost you each month. Don't forget to consider those utility payments too! And try not to pass-out when you look at the TOTAL cost if you finance and pay on that house for a full 30 years! BUT WAIT...
There is hope for avoiding that huge amount! This calculator also has the amortization schedule at the very bottom, and if you pay extra principle payments each month, you could greatly decrease that overall cost of your new home. Bookmark this mortgage calculator and play with different numbers!