How do I calculate my mortgage payment?
Most people opt out of doing their own mortgage math and instead take advantage of a mortgage calculator like this one. But, if you want to see how it all goes together, here's the basic formula:
There are three parts to your basic mortgage payment:
- Principal: The principal is how much money you borrowed if it's your first payment, or how much you still owe, if it's any payment after that. It doesn't include interest.
- Interest: Interest is the amount you pay, essentially, for the privilege of borrowing money. Very rarely is it free to borrow a mortgage (though there are some first-time home buyer second mortgages that do have 0% interest).
- Term: The term is how many of your mortgage payments remain. In the above equation, it's referred to as "months," which is correct for that calculation. You can also express the term in years, when appropriate, such as when you say that you're getting a 30-year fixed interest mortgage loan.
These items, taken together and put through the above calculation, result in your mortgage payment, also known as "P+I" or "PI" since it's only your principal amount and your interest amount calculated together.
Additional items may be included in your monthly payment, if your loan escrows additional expenses on your behalf. These would include things like:
To calculate your new mortgage with these additional expenses included, just click "Show additional inputs" on the mortgage calculator above and add your estimated figures. It will get you a very close estimate of what to expect.
Things to know before buying a house in Kentucky
Kentucky real estate prices are definitely affordable for many, but so are their property taxes. In Kentucky, the average property tax rate is 0.72% of a property's assessed fair market value, making the state 36th in the nation. If your home in Kentucky is assessed at $117,800, for example, you'll only pay $843 per year.
Kentucky's climate, like many others, is changing, though much of Kentucky is seeing a slower increase in temperature than a lot of the country. Rainfall, however, is increasing, with more rain falling at once, which can have the paradoxical effect of reducing groundwater supplies.
Due to the more intense rain events, flooding is becoming a more significant weather problem in parts of the state, and tornadoes and winter storms are issues across Kentucky. Because of these weather hazards, it's important to seriously consider more than just a basic homeowners insurance policy. Additional coverage like wind or flood insurance can help you recover when the most brutal weather strikes -- remember, your homeowners policy won't always pay for these hazards.
Once you have a ballpark price for that from your insurance agent, plug that number into the Kentucky mortgage calculator to help give you a better estimate of your overall payment.
Tips for first-time home buyers in Kentucky
If you're a resident of Kentucky, there's good news! You may be able to get down payment assistance through the Kentucky Housing Corporation. It only has one option for down payment assistance, but many Kentucky buyers may qualify. Here are the details:
- Purchase price must be below $481,176
- Income is based on county, but cannot exceed $101,100 for a one-to-two person household.
- Down payment and closing costs assistance up to $10,000
- Assistance terms: 10-year loan at 3.75%
Advice for all first-time borrowers
Regardless of which home mortgage program you use, and whether you choose to take advantage of first-time home buyer programs in Kentucky, you'll need to become the very best version of yourself when it comes to your financial profile.
This means ensuring you:
- Continue to make your bill and debt payments on time
- Keep your credit card utilization low
- Pay down debt to improve your debt-to-income ratio
- Don't change jobs (and if you do, stay in your same industry with a pay increase)
- Don't open any new credit accounts until after closing
Applying for new credit or closing accounts while you're in underwriting can spell disaster for your mortgage. The best thing to do once you've found a house is absolutely nothing (besides paying your bills, of course). It's exciting to plan on furnishing your new home, but you can fill up online shopping carts to your heart's desire before closing day and pull that trigger after you have the keys.
Underwriters check your credit more than once during the process, and the last thing you want is for your loan to not be funded because you've made a serious credit mistake in the week or two before closing, leaving you unable to buy a house.