Can you afford to pay more for housing, after paying all of your bills, than you pay right now? Do you usually have money left over at the end of each pay period? If not, you need to change some of your spending habits before you seriously consider buying a home. You’re not ready to buy until you’re confident that you can comfortably pay the mortgage payment and other housing-related costs. If you miss mortgage payments, you could lose your house!

Calculating Your Monthly Payments

Your monthly mortgage payment is not just the cost of the loan. It usually includes other costs, like property taxes and homeowner’s insurance. The lender then pays your insurance company and your property taxes for you. "Most lenders require a down payment. This is a single up-front payment that is usually between 3% and 20% of the value of the home you are buying. A 3-5% down payment is standard for many first-time homebuyers programs. This down payment will reduce the amount you borrow. The EverydayMoney Mortgage Tool can help you estimate monthly payments for different kinds of mortgages.

Your mortgage payment may include the following costs:

Principal

This is a partial payment of the money you borrowed initially.

Interest

This is the amount you pay to use the money you borrow. During the first few years, most of your payments are applied to interest. After that, your payments are applied more to your principal.

Taxes

You have to pay property taxes. You might pay them yourself or they might be part of your monthly payment. If they are part of your monthly payment, your lender will pay your taxes once or twice a year.

Insurance

You might pay your homeowners insurance as part of your monthly payment or pay it separately. If it is part of your monthly payment, then your lender will make the payment to your insurer. If your down payment is less than 20% of the cost of your home, you will also need private mortgage insurance (PMI) charged by your lender.

When figuring out what you can afford to pay each month, you have to think about all of these things. If you miss payments, the lender has the right to take your home away from you and sell it to pay off your mortgage.

Up-Front Costs and Ongoing Costs

There are lots of costs to think about before you buy your house and move in. There are even more costs to think about once you’re in your house.

Up Front Costs

Ongoing Costs