A house is the largest purchase most of us will ever make so it’s important to calculate what your monthly payment will be and how much you can afford. The free online mortgage calculators will show you how much your monthly payment will be. It can also show the effect of adding extra payments.

Buying or renting and how much can I save?Which is better?

This buying or renting mortgage calculator help calculate and compare.

In the early stages of the period (life) of the loan the actual repayment towards principal will turn out to be very small while that towards interest payment will be very big. In the later stages, however, this case will be reversed.

Amortization involves the ‘term’ of the mortgage or ’spread’ of the repayment schedules over a period of time. A mortgage can well be the longest loan to be taken, meaning, it spreads over the longest period in the process of getting repaid. Mortgages could even elongate to 15, 20, 25 or 30 years. Normally, the shorter the term involved in amortization the lesser the interest one has to pay back. So, amortizing one’s mortgage over a lower term might seem plausible. However, it must be remembered that the monthly installments to be paid in case of mortgages amortizing over a shorter period also need to suit one’s financial position and earnings/incomes.

Car loans and home loans well conform to the amortization norms because each of them has a fixed payment schedule remaining the same for the life of the loan. Credit card payments, on the other hand, involve a revolving loan and have no definite lifetime or payoff date and change on monthly basis.

The APR also doesn’t consider the value of money used for paying lender fees even though you may use it to get a low rate on your mortgage. Until and unless the fees are added to the closing costs, the lenders won’t consider it when they calculate APR.

Here’s an example to show why you shouldn’t compare loans just by the APRs on offer. Just check out the calculation on how to compare loans with different APR explained below. It will give the idea as to what other factors (besides Annual Percentage Rate) should be considered while comparing loans and which lender has the better offer for you.

Let’s consider 2 mortgages - X and Y, both being fixed rate mortgages of the same amount and loan term (30 years).

Loan X has the following details:

Mortgage amount = $200,000
Interest rate = 6%
APR = 6.25%
Lender fees = $5000

The amount financed (loan amount minus fees, points, etc) = $(200,000 – 5000) = $195,000.

Using the FRM calculator, the monthly payment = $ 1199.10

Loan Y has the following details:

Mortgage Amount = $200,000
Interest = 6.25%
APR = 6.45%
Lender fees = 1500

The amount financed = $(200000 – 1500) = $198,500

Using the FRM calculator, the monthly payment = $ 1231.43
The monthly payments on loan X and loan Y differ by = $(1231.43 - 1199.1) = $32.33

From the calculation on loan comparison with different APR explained above, we see that loan X has a low Annual Percentage Rate and requires you to pay lower monthly payment as compared to loan Y. But you need to pay higher lender fees for loan X whereas if you go for loan Y, you can save $(5000 – 1500) = $3500 in fees.

On the other hand, if you go for loan X, you’ll save only $32.33 on a monthly basis. Using this savings, you can recoup the $3500 in = (3500/32.33) = 108 months or 9 years. If you’d like to sell the property within the 9 year period, then you won’t be able to recoup the extra fees. In such a case, loan Y will cost you less. So, if you’d like to relocate within a short term, say 5-6 years, then loan X isn’t the right one for you. Thus, a loan with a higher APR and low fees may be a better option than one with a low APR and higher fees.

The Annual Percentage Rate is often used to compare mortgage lenders and the programs they offer. However, it is not an effective tool for lender/loan comparison because a mortgage with high APR may often be a better option compared to one with a low APR.

No doubt markets keep changing, but your personal finance and credit has a big role to play here. There are 3 things lenders will watch out for:
Your credit score
Your income and liabilities
Your down payment
But prior to approaching lenders, check out yourself 11 affordability factors which will help to decide whether it’s time for you to take out a mortgage.

1. Are you debt-free?

Have you taken out credit cards, personal loans or an auto loan? If you have high interest credit cards, consider paying them down and avoid using more than 10% of your cards’ limit at any given time. However, if you are debt-free, you can possibly go for a bigger mortgage depending upon other factors.

2. Do you save for retirement and children’s education?

You may be saving for your retirement by investing into employer sponsored plans like 401k/403b as well as the IRAs. You may like to save for your child’s education (Coverdell education Savings and 529 Plan) as well. So, decide whether you’re comfortable with managing a mortgage as well as savings plan.

However, if you have too much of credit card debt, pay it off and then start saving for future. Otherwise, managing credit cards, savings and then a mortgage may be quite difficult!

3. How’s your credit?

If you’re looking for mortgage in a market where borrowing is costly and difficult, then having poor credit will cost you a lot. In such markets, a borrower with a score of 620 is no longer considered creditworthy! At least you should have a score of 680 to qualify for better rates and terms.

Although there are FHA and VA programs for those having poor credit, yet, if you want to get the best program and avoid mortgage problems in future, then wait till you repair your credit and then apply for a loan.

Often lenders take the initiative and work with borrowers in improving their credit scores prior to offering the loan. However, if your score is between 640 and 680, consider putting down 10-15% of purchase price so that some of the best programs are available to you.

As for the credit history, most lenders look for 3-5 tradelines (mortgage, second mortgage, credit cards, auto loan, student loan, store card, gas card, secured/unsecured installment loan etc) in good standing for the past 2 years.

4. Are there enough of cash reserves?

Most lenders will require you to have cash reserves/savings equal to at least 6 months of mortgage payments (PITI) apart from what you’ll pay for closing costs and down payment.

However, not all programs (such as the FHA loans) require this but it’s better to have some cash reserves so that in case there’s an emergency you don’t miss a payment and bring down your credit score.

5. Do you expect a raise in your income?

Are you a fresher at job or have you been employed/self-employed for 2 years or so? Do you think your income will increase in a few months or so? Check out how much you can borrow at your current income. If you need more, wait till your income gets higher.

6. How much of your income goes into paying off debts?

In order to take on additional debt, you’d have to calculate how much of your income (include all sources of income) is being spent on current debts such as credit cards, personal loan, auto loan etc. This is given by the debt-to-income ratio or DTI. (You also can visit here to find an online mortgage calculator to calculate monthly payment of your mortgage loan)

The DTI = (total monthly debt payment/gross monthly income)
So, the % of income put into paying off debts = DTI * 100

Check out yourself the DTI using Debt-to-income Ratio calculator.

The higher the DTI, the lower are your chances of getting a mortgage because you pose a higher risk to lenders if you’re already having a lot of debts to pay for.

7. Do you have an insurance policy?

Are you paying premiums for automobile, health or life insurance policies? Decide whether you can manage a mortgage while paying the premiums. Buying a home is no doubt an important step in your life but having a proper insurance coverage is also worth considering!

8. Are you investing in stocks?

You may like to invest in stocks, bonds, and mix and match options to build up a strong portfolio. However, investment options are subjected to market risks, so it’s worth consulting an investment expert in order to get maximum returns. An estimate of such returns will help you decide whether it’s worth investing or getting a mortgage.

9. What about home prices?

If it’s a declining market with home prices going down, you may like to wait till prices get better. This is because lenders may reduce the loan amount as investors won’t provide enough funds.

Moreover, if you cannot pay off the mortgage and decide to sell the home, you won’t get enough proceeds because the home value will turn out to be lower than what you owe. Thus, in a declining market, you can’t rely on home sales to pay down your mortgage. Rather you’d have to choose options which will have a negative impact on your credit.

However, if you’re planning to occupy the house for a long time and your finances are in good shape, you may go for a home that’s losing value now as you have the time to wait till prices get higher.

10. Concerned over inflation and Fed rate changes?

Rising inflation and changes in market rates may be some of your major concerns. The Fed often cuts down the rates thereby preventing the economy from recession. But lower rates often reduce the value of dollar thereby raising inflation. So, you need to think whether you can manage a mortgage besides maintaining your lifestyle in the midst of rising prices. If you compare inflation rate over the past few years, you’ll get an idea of how much high or low prices will be in the next 5-10 years. This will help you decide whether you can afford to take out a home loan.

11. How does the industry affect you?

The lending industry has been changing with time to keep pace with inflation and economy. With market changes and scenarios like the credit crunch (due to sub-prime mortgage crisis in 2007), lenders have come up with stricter lending guidelines in order to reduce the rising rate of foreclosures.

Due to market changes, certain programs are simply not available. For example, due to the rising concern over foreclosures (in 2007-2008 beginning) and borrowers’ inability to pay off loans, lenders have almost stopped offering 100% financing or 80/20 loans.

No doubt, inflation, home prices, fluctuating rates and industry changes have a big impact on your decision to take out a mortgage. But these are external factors on which you don’t have much control. So, instead of taking decisions with respect to the external changes, it’s better to improve factors that you can control - your personal finance, credit record, debt-to-income ratio and down payment.

Private Mortgage Insurance, or PMI, is insurance required by the bank or lender providing financing if the LTV, or loan-to-value is greater than 80%. PMI is important because it protects the bank or lender in the case that a borrower with a very high LTV defaults on their mortgage. And it is said to benefit the borrower by allowing them to finance a property with very little down in one single loan.

However, there are plenty of programs with special features available for borrowers with different income level. What buyers need is a little knowledge of mortgage and its pros and cons so that they can purchase their dream homes using the best program available.

2. Find a home without pre-qualification and pre-approval
There are buyers who start shopping for a home without getting pre-qualified and pre-approved. The seller knows nothing about their income and credit status and as such cannot make out as to how much they can invest in a home. But if you get pre-qualified with a broker or lender before seeking a home, you can convince the seller of your ability of getting a mortgage loan.

A letter from the lender or broker to the seller can further improve your chances of getting the home of your choice.

3. Not shopping around for the best lender
Borrowers usually try to go for lenders who offer the lowest interest rate. But there is the annual percentage rate which includes additional costs like loan processing fee, loan origination fee or origination points etc. Besides the costs involved, the lender’s reputation and his services are worth considering.

4. Buying a home without home inspection
Home inspection helps to find out whether there is scope for repair in the property. The reports of such inspection help you negotiate with the seller to reduce the transaction costs. But the repairs should be done prior to paying escrow fees required in mortgage.

5. Making verbal statements
Home buyers are often asked to sign documents that contradict their verbal statements. Moreover, your state may require you to make a sales contract in writing. So it is better that you don’t make verbal agreements; rather go for written statements with your seller.

6. Signing documents without checking
Buyers often sign documents without reading them. These documents are standard forms and are available for review. But you may not be able to read them all at closing. So you should go through them prior to closing and avoid difficult situations in mortgage and home buying transactions.

7. Not getting a Good Faith Estimate
You need to look around for any hidden fee (document preparation fee, notary fee etc) involved in the loan process. So, go through the Good Faith Estimate (GFE) provided by the lender and you’ll get an account of the fees associated with the mortgage.

You should receive the GFE within 3 business days of applying for the loan. This prevents you from paying hidden and unnecessary fees. So, if you aren’t getting one from the lender, request him to provide you with a copy of it.

8. The rate-lock is not made in writing
Get a written agreement of the rate-lock offered by your lender. This agreement includes the interest rate, period of rate-lock and other details of the loan program.

9. Lock in at low interest rates
Majority of buyers wait for market rates to decrease before going for a rate lock. But the reverse may happen. The interest rates may increase and you may have to pay more. However, you can avoid this by keeping a close watch over the rise and fall in market rates. This will help you to lock in at a lower rate.

10. Use an agent who represents both buyer and seller
You can take help from an agent to lower the costs of the home buying transaction. But agents representing both parties negotiate preferably on part of the seller for getting commission from the latter. Therefore, it is better to choose an agent who will negotiate solely on your behalf and help you save.

11. Terminating the lease on the date of closing
You may ask your landlord to terminate the lease just on the day of closing. But this can lead you into trouble if the closing is delayed by a week or so. Therefore, the lease should be terminated a week after the closing so that you can avoid further problems in the transaction.

12. Shopping for home insurance just before closing
There are buyers who look out for homeowner insurance policies just before the closing. But they fail to shop around in the last minute. Hence, it is better to search for the best policy as soon as a lender approves your loan.

No doubt, you cannot reverse each and every home buying mistake as some of them may have long term effects. But if you can try and avoid some of the major mistakes, chances are that your home buying process will be smoother and faster.

Mortgage loan application form requires the following information:

• Purchase price or value of property.

• Loan amount required.

• Your gross annual income.

• Which term would suit you best:

5 years.
10 years.
15 years.
20 years.
25 years.
30 Years
40 Years

• What loan types are you interested in:

• Variable rate principal and interest.

Variable rate interest only.
Fixed rate principal and interest.
Fixed rate interest only.

• Applicant’s details:

Name
Address
Telephone no.
Date of birth
Facsimile
E-mail
Occupation
Annual income
No of dependant children
How long you lived there.

Features of an application form:

They are used to enter, update, or query information.
Gives full and complete information about the applicant.
Provides initial enquiry and basic details.
Online application forms are fast, easy and real time savers.

For example, Mr. Peter is interested in taking a mortgage loan from Susan. He is asked to fill a mortgage loan form by her so that she is able to decide that he qualifies for the mortgage loan or not. This is known as ‘Mortgage Loan Application’.