“How much house can I afford?” If you’re shopping for a home, you’ll need to answer that important question. 

To get a good idea of what you can afford, use a handy mortgage calculator. The results might surprise. Simply input your estimates into a handful of key categories and the mortgage calculator will do the rest.

Before entering your estimates, take a minute to familiarize yourself with the main elements that make up a mortgage:

Home Price

This is how much you expect to pay for your home. If you already live in a neighborhood you plan to buy in, you probably have a good idea of what homes are going for. If you’re unfamiliar with the neighborhood, peruse home search sites and consult with Real Estate Agents specializing in the area.

Down Payment

This is how much you expect to put down or contribute to the purchase of your home. Whatever you don’t put down will likely have to be financed. Many mortgages require as little as 3% down, which may allow you to purchase a home if don’t have a lot of savings or you simply want to leave some money in reserves. Keep in mind, if you do put down less than 20%, you will likely need to pay monthly mortgage insurance. However, New American Funding does have some loan options that do not require mortgage insurance with less than 20% down. Either way, opting to pay mortgage insurance can be a savvy bet, especially if you live in an area with rising home values.

Mortgage Term

This asks you how much time you would like to have to pay off your mortgage. Would you prefer a traditional term, like 30 years, which will lower your monthly payment but increase the interest you pay over the life of the loan? Or perhaps a shorter term, like 15 years, is right for you? This will require a larger monthly payment, but reduce the interest you pay over the loan’s duration.  

Interest Rate

This is the interest you can expect to pay. A combination of factors will go into the interest rate you receive – personal details such as your credit score and the size, type and term of the loan you choose.  

Property Taxes and Insurance

Not all mortgage calculators include this category, but the better ones will, simply because your mortgage payment includes not just principal and interest, but also taxes and insurance in most situations. Think of the acronym PITI, which stands for principal, interest, taxes and insurance. For property tax information, consult the property profile offered by New American Funding. The cost of insurance includes your homeowner’s insurance premium, and, when applicable, any mortgage insurance premium and homeowners’ association fees.

Plug and Play

After entering the above information, click enter, and your monthly mortgage estimate should appear. Adjust the numbers as often as you like until you get a number you believe you can live with.

No one expects you to be a mortgage expert overnight, no matter how many calculations you make. That’s why it’s vitally important to work with a lender at the very beginning of the process. He or she may have information about down payment assistance and other financing incentives, like lender-paid buydowns, to help you comfortably finance your home purchase. They, after all, know the lending rules of the road better than anyone.

A knowledgeable lender can also help you anticipate your true housing costs, beyond just paying your mortgage, making you aware, for instance, of the cash you should have set aside for home maintenance and repairs.

Lastly, work with a reputable lender who not only will walk you through the math and tell you the maximum mortgage you can qualify for, but also will counsel you to select only the mortgage that you feel you can afford.