To get an idea of what home you can afford, you can use Neat’s home affordability calculator. This handy resource can help you estimate how much home you may be able to afford just by entering your income, available cash, and interest rate. To get a closer estimate, you can enter a few additional factors, all of which are explained below.
What to enter into Neat’s home affordability calculator
The basic ingredients:
Household Income: This is your gross annual income. It is the amount you make each year before taxes are taken out. If you are applying with a spouse, partner, or co-borrower, include their income as well.
Available Cash: This is the amount of cash you have available for the upfront costs of purchasing your home. These costs include your down payment, closing costs, and prepaids. Cash includes what you have set aside in your checking and savings accounts, brokerage account, certificate of deposit, IRA or 401(k), proceeds from home sale, and gifts.
Interest Rate: This is the cost of borrowing money for your home. It is shown as an annual percentage of the amount of money you are borrowing.
For a closer estimate of how much home you may be able to afford, you can also enter:
Other Debts: This includes the minimum payments you make each month on debts like student loans, auto loans, and minimum credit card payments.
Loan Term: While 30 years is the most common loan term, lenders typically offer many different options. With a shorter-term loan, you’ll have higher payments but will pay less over the life of the loan.
Property Tax: This is the amount you’ll be required to pay each year as a property owner. You can find out the property tax through the tax assessor in your city or county.
Homeowners Insurance: This is the amount you pay for the insurance policy that protects your home. It varies by state, location, home condition, personal information, deductible, discounts, and insurance provider.
HOA Fees: If you purchase a home that has a homeowners association, you will be expected to pay HOA fees. This is the amount you pay to assist with the upkeep and improvement of the homes in the HOA.
What the Neat home affordability calculator will tell you
Once you have entered values for each of the items above, the home affordability calculator will generate estimated monthly housing payments as well as the estimated amount due at closing. These values will be based on home loans that you could possibly qualify for — ranging from easily affordable to a stretch.
Monthly Housing Payment
Your estimated monthly housing payment will include the amount you’ll pay each month for your home. This includes your mortgage payment, taxes, homeowner's insurance, HOA (if applicable), and mortgage insurance (if applicable). This is often called PITI, which stands for principal, interest, taxes, and insurance.
Here’s what’s included in the estimated monthly housing payment generated by Neat’s home affordability calculator:
Mortgage Payment: This is the amount you pay each month for your mortgage, which includes both principal and interest. Principal is the amount that goes toward paying down the balance of the home loan. Interest is the cost of borrowing the money, which is paid to the lender. Interest is tax-deductible.
Property Tax: If you entered the estimated property tax, the calculator will include it here and figure it into your monthly housing payment.
HOA Fee: If you entered an HOA fee, the calculator will include it here and figure it into your monthly housing payment.
Homeowners insurance: If you entered an amount for homeowners insurance, the calculator will include it and figure it into your monthly housing payment.
When you purchase a home, all parties involved sign documents to complete the transaction. This is called the closing. As the buyer, you are responsible for certain costs that must be paid at closing. The costs vary based on many factors including the price of the home, your down payment, and the location of your home.
Neat’s home affordability calculator will also show you the estimated amount that will be due at closing. Here’s what’s included:
Down payment: This is the amount of money you pay upfront towards the cost of your home. Whatever amount you don't pay upfront, you borrow in the form of a mortgage. Down payment is often expressed as a percentage of the home price. For example, if a home costs $400,000, a down payment of 20% is $80,000. In this example, the remaining 80% would result in a mortgage balance of $320,000.
Closing costs: These are fees that you pay in order to complete your home purchase. The exact amount can vary greatly, but many buyers plan for around 2-3% of the home price. Closing costs can include appraisal fee, home inspection fee, loan origination fee, title search fee, and title insurance.
Prepaids: These are expenses paid in order to establish an escrow account. You pay monthly for items such as taxes and insurance and once they are due each year, the funds are taken out of your escrow account. By paying prepaids at closing, you ensure that your account has funds on day one. The number of months of payments you need to provide upfront differs by state.
As you can see, running these calculations on your own can be complicated. However, Neat’s home affordability calculator makes it easy!
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