How Much Is a Mortgage?
How much should you expect to pay?
A mortgage is a type of loan that allows you to buy a home. The cost of a mortgage varies, depending on several factors, including the type of home you'd like to buy, as well as where it's located. The cost of a mortgage is also determined by your personal financial situation. In other words, determining how much a mortgage costs means deciding how much home you can afford. This includes how much you're able to afford as a down payment, in closing costs, and monthly payments for the duration of the loan.
How do you determine how much home you can afford?
Determining your budget is a great first step toward buying a home. You should start by looking at your annual income, savings, credit score, and monthly expenses. This will give you an idea of how much you might be able to afford for a down payment, in closing costs, and for your monthly payment. Try using our home affordability calculator to get an estimate. Get
ting prequalified is another great way to get an idea of how much home you can afford. Learn more about getting prequalified.
How much is a down payment?
The size of your down payment will vary, based on what you're able to afford, as well as the type of loan you're eligible for. Those who qualify for VA or USDA loans may not be required to make a down payment. FHA loans require a minimum down payment of at least 3.5% of the purchase price of the home. This means that if you want to buy a $300,000 home with an FHA loan, you will need to make at least a $10,500 down payment.
Conventional loans require a minimum down payment of 5%. If you make a down payment that's more than 20%, you will not be required to pay for mortgage insurance as a part of your monthly payment. Mortgage insurance protects lenders if a borrower defaults on their loan. For reference, if you wanted to buy a $300,000 home with a Conventional loan, a 5% down payment is $15,000 and a 20% down payment is $60,000.
Keep in mind that there are advantages and disadvantages to the size of your down payment. For example, a smaller down payment means that you may have more money left in savings for emergencies. A larger down payment might mean that you have a lower monthly payment and might save money in interest, over time.
Typical closing costs
When you calculate how much your mortgage could cost, you should also factor in how much you could pay in closing costs. Closing costs can vary by many factors, including loan type and location. Conventional and VA loans have closing costs that typically range between 2% and 5% of the home's price. According to the U.S. Department of Housing and Urban Development, FHA loans have closing costs that average between 3% and 4% of the purchase price of the home. Learn more about what to expect to pay in closing costs.
How much is a mortgage payment?
Your monthly mortgage payment is calculated in a way that's unique for you. The payment goes toward paying down your principal balance, interest, homeowners insurance, property taxes, and mortgage insurance, if applicable. Keep in mind that your monthly mortgage payment does not include your utilities or the costs of home repairs.
What affects your monthly mortgage payment?
The size of your monthly mortgage payment is affected by several factors, including:
- How much money you borrow. The purchase price of your home and how much you borrow is the biggest factor that will affect your mortgage payment. A more expensive home typically means larger monthly payments.
- The size of your down payment. The larger your down payment is, the less money you'll need to borrow, and, therefore, the less you will pay each month. Conversely, a smaller down payment may mean you'll make larger monthly payments. Learn how your down payment affects your monthly payment.
- Your interest rate. The lower your interest rate, the less you'll have to pay each month. A better credit score may help you qualify for a lower interest rate. Learn more about the credit score you need to buy a home.
- Your loan term. Mortgages with a 30-year term give you 30 years to pay off the loan. Mortgages with 15-year terms give you 15 years to pay off the loan, which means that you, typically, will have higher monthly payments, since you're paying back the same amount of money in less time. Learn more about the pros and cons of 15-year vs. 30-year mortgages.
Last reviewed and updated December 2023 by Freedom Mortgage.