How do I calculate my mortgage payment?
We have an easy-to-use Michigan mortgage calculator, so you don't have to calculate your mortgage payment by hand, or know how the formula works (unless, you're reading this for a math class). But there is a formula to calculate a monthly mortgage payment. First, you should be familiar with the three variables used in the calculation.
Principal (P)
Principal refers to the amount of money you borrow. Be sure to use your loan's original balance, not its current balance or your home's selling price. And if you rolled any origination fees into the loan amount (most common with FHA loans), be sure to include those too.
Interest rate (r)
This sounds obvious enough, but there is one big caveat. You're calculating your monthly mortgage payment, so you need your loan's monthly interest rate. To find this, take your loan's annual interest rate (not the APR) in decimal form, and divide it by 12.
Number of payments (n)
This is the number of regular monthly payments you'd make throughout the term of your loan. To find it, simply multiply your loan term in years by 12. For 15- and 30-year mortgages, this would be 180 and 360, respectively.
Now that you know what all of the letters mean, here's the formula to calculate your mortgage payment:
Note that this only calculates the principal and interest (P&I) portion of your mortgage payment. It doesn't include taxes and insurance, which virtually all residential mortgage lenders require you to pay along with your monthly payment. And if you're buying a condo or a home in a neighborhood with a homeowners association, don't forget to consider any HOA fees you'll have to pay.
For the best interest rate and terms for your new mortgage, make sure to get several quotes from the best mortgage lenders. This can save you a ton of money over the long term.
Learn more: How Do Down Payments Work?
Things to know before buying a house in Michigan
Before you buy a home in Michigan -- especially if it's your first one -- there are a few things to be aware of. Here are some cost-related issues and other things to keep in mind as you start your home search.
Michigan property taxes
Michigan ranks No. 18 in U.S. states for tax rates, putting it slightly above the midpoint. However, because home prices are still much lower than in many areas, you will find yourself actually putting less money into taxes, even if it's not a smaller percentage of your home expenses.
The average Michigan homeowner pays 1.62% of their home value in property taxes each year, so on a home assessed at $250,000 this translates to an annual bill of $4,050. Be sure to account for this cost when determining whether you can afford a particular home. An annual property tax bill also tends to only rise over time.
Michigan homeowners insurance
According to Insurance.com, Michigan's homeowners insurance premiums are slightly below the national average, at $2,607 for $300,000 in coverage. Of course, insurance costs can vary significantly with the condition and features of the property, but generally speaking, Michigan isn't a particularly expensive place to insure a home.
Credit and income requirements
This isn't Michigan-specific, but mortgage affordability is only one half of the equation. It's also important to be sure you meet the requirements for a mortgage. You'll need a stable employment history, as well as enough income to justify the loan. And you'll need to meet your lender's credit scoring requirements for the type of mortgage you're applying for. With an FHA loan with the minimum down payment, this typically means a score of at least 580, while conventional mortgages require at least 620 -- however, lenders can set their own minimum credit standards higher than these.
Rental restrictions
If you're planning to buy an investment property or second home, or you simply want the ability to rent your home out when you aren't there, it's important to be aware that many local markets, condominiums, and homeowners associations have their own rental restrictions, and some prohibit short-term rentals altogether. If you may want to rent your home, be sure to research any restrictions that apply before you buy.
Learn more: Home buyer checklist
Tips for first-time home buyers in Michigan
Like most states, Michigan has a first-time home buyer program designed to help people get into homes. Known as the MI Home Loan program, this is a mortgage offered in partnership with lenders that is designed to be paired with down payment assistance programs.
Buyers must be first timers to qualify. A first-time home buyer education class is also required. The minimum credit score for this program is 640 for traditional housing or 660 for multiple-section manufactured homes. The maximum sales price is $224,500 as of this writing. Buyers who qualify can get as much as $7,500 in down payment assistance ($10,000 in certain ZIP codes). The down payment assistance is structured as a deferred, 0% interest loan, that doesn't need to be paid back until the home is sold or refinanced.
Read more: Best mortgage lenders for first-time home buyers
Still have questions?
Here are some other questions we've answered: