After going through the previous question of how much can I afford, the next step is to start playing with the inputs to determine the following:
- Percentage or dollar amount to put as a down payment
- Anticipated interest rate from your bank
- Life of the loan you are looking to have (e.g. 15-year, 30-year, etc.)
- Estimate of annual taxes, insurance and HOA (and private mortgage insurance (PMI) on most loans if putting down less than 20% at closing)
- Also, if comparing a mortgage payment vs. a monthly rent payment add in “Other” costs that would be applicable in owning a home but not applicable in renting say an apartment (e.g. lawn service). Also, if you will be having a garage apartment to rent out include the amount as a negative in the “Other” input so that you factor in the income you will be receiving to come up with a net amount each month.
*Don’t make the mistake of only factoring your monthly payment amount based on principle and interest as there are other required costs that should be factored into your housing budget.
After discussing with your bank likely terms on the interest rate, life of the loan and PMI, and doing your research on taxes, insurance and HOA, the next step is to plug these inputs into a mortgage calculator to see what the total monthly payment is each month.