Great mortgage question!
Being able to answer the question, “how much can I afford as my monthly mortgage payment” is crucial to your financial health.
You are looking to buy a home and your real question is what is the purchase price range that I should stay within.
A mortgage is just the process of financing your dream home.
Let’s start with some basics about mortgage loans.
Typically, mortgages in the United States are 15-year or 30-year mortgages.
There are 3 primary mortgage types and plenty of options under these 3 categories.
Each mortgage type requires a unique down payment. Each mortgage has unique underwriting rules that state how much a borrower is required to put down on a home purchase.
When you get a mortgage you are really interested in 2 things:
- The monthly mortgage payment (principal and interest)
- The total monthly payment (principal, interest, taxes, and insurance)
When you go “home shopping” what do you need?
First, you need a pre-approval letter from us (your mortgage lender).
Second, you need an amazing realtor (need a referral… we know the best!)
What is the benefit of owning versus renting?
You may be renting… I call this paying your landlords mortgage payment.
Sure with a mortgage, there is interest that you pay monthly on the mortgage… but every month a portion of your mortgage payment called “principal” pays down the amount of the mortgage you owe.
The interest that you do pay is a tax deduction!
Your rental payment is never a tax deduction… so what is happening when you buy a home?
First… you get a tax deduction on the interest that you pay.
You are building equity in your home?
What is equity? It is the difference between the appraised value (or sales value) and the amount you owe on the mortgage.
You buy a $100,000 home… and have a $100,000 mortgage. USDA Mortgage).
Every month you pay $500… and $100 goes to principal.
What is your equity after a year? $100,000 – $1,200 = (98,800) or $1,200 in equity…
What else is happening? Your home is appreciating in value. So that $100,000 purchase might now be worth $101,000. So what would your equity be now? $2,200!!
What is your equity in the home you are renting? $0.00… GRRR!!!
What is happening when you rent? You are making your landlord $2,000 to $3,000 richer every year!! That is on the low side! What if they don’t have a mortgage on your rental? WOW!
When you own you also get to deduct your interest payment ($400 x 12 = $4,800) on your tax return. ASK your tax expert how much you can deduct… but the bottom line is you reduce your tax liability…
How much is your tax liability reduced when you rent? A big fat ZERO…
As mortgage pros, we are here to help you through the mortgage process. Questions about credit or down payment? We’ve got you covered!