How to Properly Calculate a Mortgage Payment
Purchasing a home is a big step towards professional adulting 🙂 . Understanding how real estate taxes can effect your home purchase and budget is an important step.
I am sure you have looked at mortgage calculators online and calculated mortgage payments. But…. can you trust the results? Unfortunately the answer is NO. 99% of the mortgage calculators online do not have the ability to enter the annual real estate taxes (Property or School Tax). Because this is not available, you are receiving an artificially low payment. and yes, I agree! Its not truthful or fair to put that information online. I receive phone calls every day about an online calculator result that is lower than an estimated payment provided by the mortgage company.
Most government backed home loans, (FHA, USDA, VA), require that you escrow taxes and insurance. This means that the real estate taxes and insurance will be included in your mortgage payment. Typically you need to add 1/12th of the annual real estate taxes to the mortgage and 1/12th of the homeowners insurance premium. To do this, you first need to know how much your real estate taxes and homeowners insurance will be.
Do Not Trust Online Real Estate Shopping Sites!
The taxes provided online are wrong most of the time. Typically sites like Zillow will pull the amount of paid taxes from public record and represent online that these are the taxes for the property. There are a few things wrong with this method. First, the current owner could have exemptions that you do not qualify for. Exemption can include Veterans exemptions, the STAR exemption (In New York), and Senior Citizen exemptions. If you do not qualify for the same exemptions, your taxes could be higher and throw off any payment calculations. Lastly, the taxes could be based on a lower assessed value. If the home is currently assessed for $150,000 but the home is selling for $170,000, the taxes will be wrong.
Once you have purchased the home, the transaction is recorded with your local county clerk. When the assessor sees that the home sold for more than the home is currently assessed, they will typically increase the assessment thereby also increasing taxes and your future mortgage payment.
How Do You Calculate Monthly Mortgage Payments?
A mortgage payment is broken into 4 parts. In order to calculate an accurate mortgage payment you will need to understand each contributing expense in the mortgage payment.
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The only way to estimate how much you will pay for Homeowners Insurance is to shop around. Get a few quotes from different Insurance Agents or Brokers and use that knowledge to estimate your mortgage payment. Make sure to be truthful about the purchase price, animals you own, and any other details about the property they need to know. The answers can change the Insurance Premium amount dramatically.
Look Out For The Bad Guys!
Not all insurance companies are bad. Actually I believe most of them are good. But sometimes, you get that one bad apple that spoils the fun. Be on the look out for insurance quotes that seem too low compared to other companies.
There are some “sales” people that just want to make a quick buck so they provide a low insurance quote, get you to verbally commit, and send your insurance information to the mortgage company. Once the mortgage company has escrowed the insurance, it becomes more difficult to switch insurance companies. That is when they come back and say something like…. ” We didn’t know the property has wood siding. We apologize but the premium will increase X dollars.” A good insurance agent will always do the research on the home up front to avoid this kind of problem. Stay aware and make sure you choose a reputable insurance company.
Then How Do You Calculate an Accurate Mortgage Payment?
- Contact your local real estate assessor to get the accurate real estate taxes
- Shop for Homeowners Insurance – Get at least 3 independent quotes
- Know your interest rate. What do you qualify for?
- Talk to your mortgage company
The mortgage company handles the money. It is the mortgage companies’ job to ensure that the payment is 100% accurate. If the payment is wrong it could cost the bank money or worse, cost the loan officer his/her job. I am not saying all mortgage companies are good but by speaking with the local assessor, the insurance agent, and the mortgage company, you should be able to get very close to what the final mortgage payment will be. Knowing the information we have armed you with, you should be able to recognize the jokers and make sure you know what kind of financial burden you are taking on when you sign your new home’s sales contract.
Happy House Hunting!
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