House shoppers hurrying to find dream homes before interest rates go higher often turn to online mortgage calculators offered by personal finance and real estate sites to get a feel for just how dreamy a home they can afford.
When they do, they risk getting bad information.
Online mortgage calculators fall short of giving all the information needed to estimate a house payment. The payment shown typically does not account for escrow or mortgage insurance payments. The teaser payment is baited out for all to see on a prominent high traffic page. This then drives click through to a mortgage site asking for all your personal information only to switch the scenario on you after you have taken all the time to share that.
Calculators often leave out important costs and provide inaccurate estimates. Property taxes, insurance, homeowner association dues or condo management fees, utilities and general maintenance are variables not accounted for in traditional mortgage calculators. Property taxes are often the biggest omission as the majority of the time they are included in the escrow portion of a mortgage payment. Many online calculators have only three input fields — mortgage amount, interest rate and number of years. The resulting payment includes only principal and interest. Yet monthly payments usually include a sizable contribution to an escrow fund for annual property taxes. Property taxes vary significantly depending on local tax rates but can amount to thousands of dollars a year, adding hundreds a month to the mortgage payment.
Insurance is another important item often skipped. The costs of a homeowner’s insurance policy are usually also collected monthly into an escrow fund from which the annual premium is paid once a year. Depending on where you live, hurricane and flood insurance may also be required. Flood insurance is not just for coastal areas either. Low lying areas are sometimes hard to detect. All told, insurance premiums may add hundreds of dollars a month to a monthly payment.
Homeowners association fees are frequently the next-biggest item calculators miss. Some single-family homes are not governed by associations and therefore have no fees. Others may owe fees of just a few dollars a month. But some townhouse or condo associations and high-end master-planned communities require payments that, again, can come to hundreds a month.
Private mortgage insurance may be required for loans when borrowers don’t put down at least 20 percent, With annual premiums amounting to as much as 1 percent of the loan amount, this too can easily make the difference when it comes to affordability.
In addition to these common costs unaccounted for by many mortgage calculators, monthly payments may also include points and other closing costs that aren’t paid in cash at closing.
Finally, although they’re not part of the mortgage payment and can vary widely by individual property, utilities, general maintenance, and repair costs should also be considered by savvy homeowners when deciding how much they can afford to spend.
Home shoppers armed with less-than-accurate payment estimates face setting themselves up for failure. If these are relied on early in the process it can lead to a rude awakening and further delays at the last minute. Even worse, they may qualify for a loan that they later find they can’t afford because their estimates were off.
Even the best calculators require accurate, current figures for taxes, insurance, and other costs. The best results require figures specific to an individual house.
Until you have a property identified, it’s difficult to get down into all the costs. Scrutinize the property listing and rely on a professional real estate agent and lending professional.
Calculators are useful for comparing only the principle and interest portion of a Frederick mortgage payment which, in turn, estimate only a partial picture of what the ultimate payment cost will be. They don’t necessarily miscalculate but they absolutely mislead.
We are always available. Contact us directly anytime to build a trusted monthly housing budget. Call or text 301-514-7889 and/email Rweinstein@firsthome.com