Last Updated on July 4, 2022 by Luke Feldbrugge
The Homes for Heroes mortgage calculator helps estimate how much house you can afford before starting the home buying process. It will help you understand and plan for your ongoing financial commitment if you choose to purchase a home. There are four main amounts that make up your monthly mortgage payment: principal, interest, property tax, and insurance (PITI). The Homes for Heroes mortgage calculator not only provides you a monthly mortgage payment estimate, but it also breaks out estimates for your principal, interest, property tax and insurance for different loan types. Continue and try it out yourself.
Be sure to click “Calculate” at the bottom of the calculator. Use this report to determine a home price that fits your budget.
And do not forget to read on after filling out your information to learn more about what makes up your monthly mortgage payment: principal, interest rate, property tax and insurance (PITI).
Principal, Interest, Taxes and Insurance (PITI) Explained
There are four main amounts included in the Homes for Heroes mortgage calculator that make up the estimated monthly mortgage payment: Principal, Interest Rate, Property Tax and Insurance. You may hear mortgage lenders refer to this as “PITI.” Let’s take a look at each and how it can impact your mortgage payment.
The “P” in PITI refers to the principal of your home loan. Principal refers to the amount of money you originally said you would pay back. The principal makes up the largest chunk of your monthly mortgage payment. The principal is not necessarily the price of the home. In fact, the principal of your home loan is rarely the price of your home. The principal of your home loan equals the purchase price minus the down payment and any fees you choose to roll into your home loan. For instance, if you purchase a home for $200,000, put down a $10,000 down payment, and got a home loan for the rest of the payment, the principal of your home loan is $190,000.
Reducing the principal of your home loan will reduce your monthly mortgage payments. There are two ways you can do this:
- Purchase a less expensive house
- Put a larger down payment on your home loan
You can also pay more than your monthly principal amount to pay off your loan faster. Most loans do not penalize you for paying off faster, but some may so make sure to read your terms carefully. It can also save you money paying the principal off faster because you will ultimately pay less in interest over the life of your loan.
Mortgage INTEREST Rate
The first “I” in PITI is interest. Interest is the cost of borrowing the principal on your home loan. The interest you pay is based on an “interest rate.” The United States Federal Reserve dictates the baseline for home loan interest rates. Lenders use the Fed’s interest rate information as a baseline to calculate a home buyer’s home loan interest rate. However, loan type, credit score, and down payment amount are important factors in your interest rate.
The type of loan, amount of your down payment, and your credit score all play a big role in the interest rate you receive. For example, FHA loans typically have a higher interest rate versus conventional loans. But, it’s easier to qualify for an FHA loan. Generally speaking, the higher your credit score the lower your interest rate. The more you put down as a down payment will typically lower your interest rate as well.
Lenders look at these factors because each loan a lender approves comes with risk. The risk is a borrower may not pay back the loan. For example, home buyers who receive a conventional loan with a higher credit score and a large down payment provide lenders with more confidence. This homebuyer often receives a lower interest rate.
You can always get an interest rate estimate online. You can also enter the interest rate estimate into the Homes for Heroes mortgage calculator. It is worth knowing interest rates can vary from lender to lender. The most accurate interest rate estimate will come directly from the lender you choose to do your home loan pre-approval.
Homes for Heroes mortgage specialists provide competitive mortgage rates AND they will save an average of $500 on lending fees. Simply register online with Homes for Heroes and a mortgage specialist in your area will contact you and answer all of your mortgage questions.
There are three main actions you can take to reduce your interest rate:
- Shop and Compare: Shop different mortgage lenders and compare interest rates. Just as you would shop for the best price on anything else, a home loan is no different. Check out different lenders and compare interest rates to get the best price.
- Increase Down Payment: If there is room in your budget, making a larger down payment on your home loan can reduce your monthly mortgage payments by reducing the principal of your home loan, but it may also reduce the interest rate you receive on your home loan.
- Improve Credit Score: Clean up your credit score by removing any discrepancies on your credit report and paying off your debt, especially any delinquent credit cards or loans.
The “T” stands for taxes in PITI and everyone is required to pay property tax when they purchase a home. Cities and counties use property taxes to pay for things like schools, roads, parks, and police and firefighters. There is not a standard tax rate for everyone. Property tax rates are determined by the local government where the house you want to buy is located. The location and the value of the home will determine the tax rate you will be responsible for paying.
If you plan to purchase a home in a neighborhood requiring a lot of funding to support public amenities such as schools, parks and community facilities it is likely you will pay higher taxes. Past property taxes paid are also public record, which you can look up online or at city or county offices. However, the best way to get a good property tax rate estimate is to ask your agent or lender. They are familiar with the local market and the value of similar houses in the area.
Homeowners and Mortgage INSURANCE
The final “I” in PITI is insurance. Homeowners insurance and mortgage insurance are two different types of insurance often added to your monthly mortgage payment.
Homeowners (Property) Insurance
The main role of homeowners insurance is to cover any major expenses that come from damage, theft and personal injuries on your property. The homeowners insurance rate you pay is determined by the property value and property location. When buying a home it may be prudent to undergo a property evaluation to ensure you are paying the right price for the insurance as well as the home itself. The insurance rate is also determined by how susceptible the property is to natural disasters, such as flooding or earthquakes. These factors can impact your homeowners insurance cost.
The easiest way to get an estimate for homeowners insurance is to get a quote from your insurance agent. Be ready to provide them with a neighborhood and approximate home value (price). Simply enter the homeowners insurance estimate from your insurance agent into the Homes for Heroes mortgage calculator.
Whether you need to pay mortgage insurance depends on your mortgage loan type and down payment amount. The two types of mortgage insurance are Private Mortgage Insurance (PMI) and Mortgage Insurance Premium (MIP).
- Private Mortgage Insurance (PMI): Private mortgage insurance is paid by a home buyer to cover a mortgage default for the lender. PMI protects the mortgage lender, and is required with a down payment less than a 20% of the home price.
- Mortgage Insurance Premium (MIP): A mortgage insurance premium is exactly the same thing as private mortgage insurance, but mortgage insurance premiums are applied specifically to FHA loans. If you do not receive an FHA loan, you will not pay a mortgage insurance premium (MIP).
When you buy and/or sell a house with our local real estate specialist, Homes for Heroes will send you a check after your closing. This is our way of saying thank you to our community’s heroes like law enforcement officers, healthcare workers, teachers, firefighters and EMS, and active and retired military. On average, heroes save $2,400 when they buy or sell a home with Homes for Heroes.
When you’re ready to speak with a qualified mortgage and real estate specialist in your area about getting pre-approved for a home loan, simply register with Homes for Heroes and our local specialists will contact you, answer all of your questions and get you on the right path to a new home and significant savings!