If you’re considering purchasing a home, it’s important to look at the big picture of home ownership before you begin the process of searching for the home. Although this is exciting news and it’s a great time to do it, you want to go into the procedure with your eyes wide open. Probably the most important questions you may have are what will the total monthly expense be or how can you calculate your total monthly mortgage payment?
Many factors go into calculating your total monthly mortgage payment. Some people try to use online mortgage calculators to determine what amount of a home they can afford. However, this may not tell the whole picture since these calculators don’t always include everything. The calculators may be only showing the base amount for the home and not factoring in other expenses that you’ll need to have every month.
What Goes Into a Monthly Mortgage Payment?
Most people when they think about a house payment, they think just about the house. That’s normal since that is what you’re purchasing. When you take out a loan, you are borrowing money for the home you selected. But there are other factors involved. Let’s take a look at the three main parts that go into your mortgage payment. This will help you calculate your monthly mortgage payment more accurately.
The most significant part of your monthly payment will be for the house payment. That will vary based on the cost of the house, the interest rate, the number of years the loan is for, and the amount of money you put down on the house. Not all that money goes toward the principal; a portion goes towards the interest. In the beginning, more money will go towards interest and less towards your principal payment. Then as the months and years pass, it will shift. The interest amount will decrease, and the amount that goes towards the principal will increase. This is called amortization.
Everyone has to pay taxes on the home’s property. Many factors determine the amount of tax you have to pay. The area that the house is in is one factor in how much you’ll pay for taxes. In Michigan, the top regions with the highest property taxes are as follows:
2) Ann Arbor
4) Grand Rapids
5) Sterling Heights
Other factors that can affect how much your tax cost will be is the following:
The size of the property
What is on the property (other structures, shed, garage, etc.)?
What is the condition of the house?
Construction and age of the house
What are the market conditions?
Approximately every one to five years, the tax assessor will reevaluate the property to determine if the property has increased or decreased in value, and the tax bill will be adjusted accordingly.
You can get an estimate of property taxes in Michigan by using this calculator here.
Another monthly cost you’ll notice when purchasing a home is that of homeowners insurance. Your lender will want to make sure that you have adequate insurance on your home since you owe money on it. Just as varying factors impact your property taxes, different things will affect your coverage too. Some of these include:
Value of the home
Whether or not you have “high risk” items such as pools or trampolines
What year was the house built?
Age of the roof
Security systems in place (may bring the cost down)
What type of heating system does the home have?
Will you be operating a business out of the home?
These are all issues that could potentially affect the amount of homeowners insurance you pay.
How are taxes and insurance paid?
Usually, your financial lender will roll taxes and insurance right together with the mortgage payment so that you have just one payment. They will set up an escrow account for taxes and insurance. The money will be placed in the account each month so that there is enough to pay the tax liability and the insurance cost. Since they will have to estimate the amount, they often estimate a higher amount and then send you a refund at the end of the year.
As you prepare to take this step of homeownership, it’s important to know just what is involved so you can better prepare. This will allow you to be realistic in what type of house will fit your budget. If you make sure to leave room in your budget for taxes and insurance, then you will be on track for selecting the house you desire.
At Mark Z Real Estate Experts, we are ready to assist you in the home buying process. Our dedicated team is experienced at working with people with varying budgets. We can give you a better idea of how much taxes and insurance would be for a particular property. If you’re in the beginning stages of looking for a home, we can see what price home would work for your budget and then we’ll help you each step of the process. Get in touch with us today for more information.