Formula for calculating your debt-to-income (DTI) ratio:
Here's an example of what calculating your DTI might look like:
Our mortgage calculator includes key factors like homeowners association fees, property taxes, and private mortgage insurance (PMI). Get the whole picture and calculate your total monthly payment.
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When deciding how much house you can afford, one of the most important pieces to determine is whether a home will fit into your monthly budget. A mortgage calculator helps you understand the monthly cost of a home. And ours will allow you to enter different down payments and interest rates to help determine what is affordable for you.
Lenders determine how much you can afford on a monthly housing payment by calculating your debt-to-income ratio (DTI). The maximum DTI you can have in order to qualify for most mortgage loans is often between 50%, with your anticipated housing costs included.
Your DTI is the balance between your income and your debt. It helps lenders understand how safe or risky it is for them to approve your loan. A DTI ratio represents how much of your gross monthly income is spoken for by creditors, and how much of it is left over to you as disposable income. It's most commonly written as a percentage. For example, if you pay half your monthly income in debt payments, you would have a DTI of 50%.
Your monthly mortgage payment includes loan principal and interest, property taxes, homeowners insurance, and mortgage insurance (PMI), if applicable. While not typically included in your mortgage payment, homeowners also pay monthly utilities and sometimes pay homeowners association (HOA) fees, so it's a good idea to factor these into your monthly budget. This mortgage calculator factors in all these typical monthly costs so you can really crunch the numbers.
The easiest way to calculate your mortgage payment is to use a calculator, but for the curious or mathematically inclined, here's the formula for calculating principal and interest yourself:
Where:
Here's a simple example:
The property taxes you contribute are used to finance the services provided by your local government to the community. These services encompass schools, libraries, roads, parks, water treatment, police, and fire departments. Even after your mortgage has been fully paid, you will still need to pay property taxes. If you neglect your property taxes, you run the risk of losing your home to your local tax authority.
Your lender will usually require you to have homeowners insurance while you're settling your mortgage. This is a common practice among lenders because they understand that nobody wants to continue paying a mortgage on a home that's been damaged or destroyed.
Here's an interesting fact: Once you fully own your home, the choice to maintain homeowners insurance is entirely up to you. However, to ensure your home is protected against damages caused by fires, lightning strikes, and natural disasters that are common in your area, it is highly recommended to keep it. Therefore, always factor in these costs when using a Mortgage Calculator.
PMI, an abbreviation for private mortgage insurance, aids potential homeowners in qualifying for a mortgage without the necessity of a 20% down payment. By opting for a lower down payment and choosing a mortgage with PMI, you can purchase a home sooner, begin accruing equity, and keep cash available for future needs. This can all be calculated using this Mortgage Calculator.
Choosing a mortgage with PMI is a popular option: 71% of first-time homebuyers had a down payment of less than 20% in July 2021. In 2020, the median down payment for first-time homebuyers was just 7%, and it hasn't risen above 10% since 1989.
PMI is automatically removed from conventional mortgages once your home equity reaches 22%. Alternatively, you can request the removal of PMI once you've accumulated at least 20% home equity.