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Mortgage & Refinance Calculator
The home buying process can seem intimidating, especially to a first-time homebuyer. Traditional financing involves a mortgage broker and a loan officer, who increase the cost of your mortgage. We eliminate the middleman and get you the lowest interest rates possible, and we can do this in under five minutes.
How to Use Our Mortgage Calculator
Our mortgage and refinance calculator is easy to use. Plug in the purchase price of the home you want to buy and set your down payment percentage to get an estimate of your monthly payment. You can use our calculator as often as you want and adjust the numbers until you find the best fit for your situation.
To use the refinance calculator, find your current mortgage information to get the interest rate and loan balance. Sometimes, you can refinance your home for a higher amount and receive cash at closing.
Calculating mortgage payments is easy enough. Now you just need to figure out if you can afford to make those payments every month. It starts with a budget and a pre-approval from our lender.
Set a Budget for Your New Home
Houses come in all price categories, which is why you should probably have a budget. Think about how much money you can afford to pay for a mortgage and how much a lender will approve you for. It’s a good idea to run through your monthly income and expenses to make sure you’re not overextending yourself financially.
Keep in mind that your lender uses a different process to calculate how much home you can afford. They consider your debt-to-income ratio, your credit score, and the size of your down payment to determine how much you can borrow. These factors also influence your interest rate, which can increase or decrease your monthly payment.
We promise to find you the lowest possible interest rate, which increases your chances of qualifying for a loan. If you’re not shopping for a new home and want to take advantage of our low interest rates, our refinance calculator can show you how much you’ll save.
When you determine your preferred monthly payment amount, you don’t generally worry about your credit score. Instead, you use your monthly income and expenses to ensure you have enough room in your budget for the house you want to purchase. We’ll share some advice on how you can qualify for a more expensive home, too.
How Lenders Set Your Loan Limit
Lenders have stringent criteria homebuyers must meet to qualify for a mortgage. They use the 36%/28% rule. When calculating mortgage payments, yours should be less than 28% of your monthly income. Alternatively, you should spend no more than 36% of your income on your mortgage and debt payments.
If you already own the home and want to refinance the mortgage, the lending criteria might be more lax, especially if you’ve been making payments on time for a while. Our refinance calculator can help you estimate your future monthly payment amount.
Your lender is using these guidelines to protect themselves against a default. If your budget is tight, you may find it harder to make those mortgage payments. And while your home acts as collateral against the loan balance, your lender isn’t in the business of selling homes. The first thing they’ll look at is your debt-to-income ratio.
Your Debt-to-Income Ratio
Your debt-to-income ratio is an important part of your mortgage approval process. Debt is a tricky thing. If you don’t have any debt, lenders aren’t sure what type of borrower you might be. That’s why not having any credit history makes it more difficult to get approved for a mortgage. Of course, having too much debt isn’t good, either.
If you have a lot of debt, your lenders worry you can’t afford to make all those debt payments. Therefore, too much debt will make it harder to qualify. Maybe you can’t borrow as much, which means you have to get a less expensive house or save up for a bigger down payment.
If your debt payments are 43% or more of your income, you won’t qualify for a loan. In fact, many lenders don’t even want to see that much debt. To improve your debt-to-income ratio, you need to either increase your income or lower your debt payments. Maybe it’s time to ask for that raise at work or consolidate your loans.
Your Credit Score and Employment History
The other two pieces of the mortgage approval puzzle are your credit score and your employment history. Your credit score helps lenders determine your trustworthiness as a borrower. A low credit score can increase your interest rate or even prevent you from qualifying for a mortgage.
Finally, a lender needs to verify your income and employment history. To get approved for a mortgage, you need a steady income source to prove you can repay the loan as agreed.
How Your Interest Rate Affects Your Mortgage Payment
Interest rates play an important role in calculating mortgage payments. Higher interest rates increase your mortgage payments. A high interest rate can even make it difficult for you to get approved for a loan, or maybe you can’t borrow as much to afford the house you want. Fortunately, there are ways to lower your interest rate:
- Decrease your debt-to-income ratio
- Improve your credit score
- Save up for a higher down payment
- Cut out the middleman
At The Low Rate Co., we make it our business to offer you the lowest mortgage rates by cutting out the middleman. Instead of paying your broker and loan officer commissions and fees, you benefit by having the lowest rates possible.
How to Afford More Home
Maybe you’ve used the mortgage calculator and realized the amount you qualify for will not buy you enough home in your area. But most people don’t really have a choice of where they want to live. You need to stay close to work and maybe you want to stay in the same school district. So how can you afford the home you want?
To qualify for a bigger loan, take some of the same steps to get a lower interest rate. You need either more income or less debt, but you can also reduce your other expenses to save up for a bigger down payment.
Increase Your Income or Lower Your Debt
Lenders evaluate your ability to repay your loan using your income, debt, and monthly expenses. A higher income gives you more wiggle room in your monthly budget to qualify for the loan. Maybe it’s time to work for that promotion and get a pay raise at work. Maybe you can get a part-time job to pay off a credit card or car loan.
You might not have exhausted all of your options for lowering your debt. It could help your debt-to-income ratio to consolidate credit cards into a low-interest loan with a fixed monthly payment. If your debt has collateral, such as a car loan, you might trade the vehicle in for a less expensive model.
If your income and debt payments won’t budge, focus on the down payment instead.
Increase Your Loan-to-Value Ratio with a Bigger Down Payment
Lenders like big down payments because they reduce the loan-to-value ratio of the house. The loan-to-value ratio is the mortgage amount as a percentage of the price of the home. A 20% down payment, which may be required with a traditional mortgage, provides a good amount of equity in the home, which spells security to the lender.
If you’re serious about buying a home, it’s time to look at your monthly expenses to identify savings opportunities. Focus all of your efforts on saving for a down payment to help you qualify for the house you want to purchase.
Improve Your Credit Score
An important step in the loan approval process is evaluating your credit score. A low credit score will make it more difficult to qualify for a mortgage. There are mortgage programs that can help people with low credit scores to get into a home, such as FHA loans. But your credit score will still influence how much you pay in interest.
If you plan to buy a home in the future, spend some time improving your credit score. From now until you sign on the dotted line for the purchase of your home, we highly recommend paying everything on time, even your utility bills. Late payments can hurt your credit score, and you don’t want to jeopardize getting a mortgage.
What’s Different About a VA Home Loan?
If you qualify for a VA home loan, this is probably the best option as far as mortgages go. VA home loans are for military families and veterans. They typically offer lower interest rates and the option of having a zero down payment. There is a limit to the amount you can borrow, but that’s not usually a problem for most homeowners.
You can use our mortgage calculator to figure out what your payment would be with a VA home loan. You may still choose to use a down payment to lower your monthly payment or buy a bigger home.
Who Can Qualify for an FHA Loan?
If you have a low credit score or no credit, you may still purchase a house with an FHA loan. These loans are insured by the Federal Housing Administration and allow you to qualify with a down payment of as low as 3.5% of the purchase price of the home. They’re popular with first-time homebuyers because of the low down payment.
How Does Private Mortgage Insurance Affect Your Payment?
Your lender requires private mortgage insurance, or PMI, if you have a down payment that’s less than 20% of the purchase price of your home. This insurance protects the lender in case of a default. If they can’t sell your home for the loan amount, PMI can help pay the difference.
VA home loans are an exception. You won’t need to pay PMI with a VA home loan even if you don’t have a down payment, because the VA guarantees the loan.
When calculating mortgage payments, understand that private mortgage insurance adds to the cost of your loan and will result in a higher monthly payment for you. Sometimes, the higher monthly payment is worth not having to wait to buy a home, because it can take time to save enough money for a down payment of 20%.
Get Pre-Approved for Your Mortgage
You can use our mortgage calculator to figure out how much you can expect to pay each month. But that’s just the first step. Before you meet with a real estate agent or fall in love with a house for sale in your favorite neighborhood, it’s time to get pre-approved for a mortgage.
How Does Pre-Approval Help?
When you fill out an application for a mortgage, you start the pre-approval process. The pre-approval lets you know how much house you can afford and what your loan payment will be. Keep in mind you’ll still have to pay for homeowner’s insurance and property taxes, but those depend on the house you purchase.
Without a pre-approval letter, you can’t get to the next stage. Your real estate agent needs to know how much you can qualify for to show you the houses that are in your price range. And when it’s time to make an offer, you need the pre-approval letter to send to the seller. Without it, they won’t take their house off the market for you.
What Does the Pre-Approval Process Look Like?
Getting pre-approved for a mortgage is simple. You need to provide your lender with your personal information, including your Social Security number. They will also ask you about your income, employment history, and current housing expenses. Then they’ll run your credit and provide you with an answer.
Once you know how much we can approve you for, you can use the mortgage calculator to experiment with the numbers. How would your monthly payment change if you bought a cheaper home? What happens if you lower your down payment?
When Refinancing Your Mortgage Makes Sense
You can use our refinance calculator to determine how much you can save by refinancing your mortgage.
At The Low Rate Co., we offer the lowest possible interest rates, which can help you save a lot every month. When calculating mortgage payments, make sure you include homeowner’s insurance and property taxes to get the total amount.