MORTGAGE CALCULATOR

For a conventional mortgage, most lenders require a minimum credit score of 620, though 740+ will get you the best rates. FHA loans accept scores as low as 580 with 3.5% down, or 500-579 with 10% down. VA loans have no official minimum but most lenders want 620+. Higher scores not only improve approval odds but can save you thousands in interest over the life of the loan—each 20-point improvement can reduce your rate by 0.125-0.25%.

A common guideline is the 28/36 rule: spend no more than 28% of gross monthly income on housing costs (mortgage, taxes, insurance, HOA) and no more than 36% on total debt payments. However, lenders may approve you for more than is financially comfortable. Consider your other goals (retirement, college savings, vacations) and keep total housing costs where they don't squeeze your lifestyle. Many financial advisors suggest 25% of take-home pay as a more conservative target.

Pre-qualification is a quick estimate based on self-reported financial information—it carries little weight with sellers. Pre-approval involves a lender pulling your credit, verifying income and assets, and issuing a conditional commitment for a specific loan amount. Pre-approval shows sellers you're a serious buyer and can strengthen your offer. Get pre-approved before house hunting, but remember it's still conditional—final approval comes after the property appraises and underwriting is complete.

It depends on your financial situation. A larger down payment reduces your loan amount, monthly payment, and potentially eliminates PMI (at 20%+). However, draining your savings leaves you vulnerable to emergencies. Generally, ensure you have 3-6 months of expenses saved after closing, plus funds for immediate home needs (repairs, furniture, moving). If that means putting down 10% instead of 20% and paying PMI temporarily, that's often the smarter choice.

A 30-year mortgage has lower monthly payments but costs significantly more in interest over time. A 15-year mortgage has higher payments but typically offers a lower interest rate and saves massive interest—often $100,000+ on a $300,000 loan. Choose 15-year if you can comfortably afford the higher payment without sacrificing retirement savings or emergency funds. Choose 30-year if you need the flexibility of lower required payments, but consider making extra principal payments when possible.

Closing costs typically run 2-5% of the loan amount. They include: lender fees (origination, application, underwriting), third-party fees (appraisal, title insurance, attorney, survey), prepaid items (property taxes, homeowner's insurance, prepaid interest), and government fees (recording, transfer taxes). On a $300,000 loan, expect $6,000-$15,000 in closing costs. Get a Loan Estimate from each lender to compare—some fees are negotiable or can be shopped.

Private Mortgage Insurance (PMI) protects the lender if you default. It's required when your down payment is less than 20% on a conventional loan. PMI typically costs 0.5-1% of the loan amount annually ($125-$250/month on a $300,000 loan). To avoid it: put 20% down, use an 80-10-10 piggyback loan structure, or look into lender-paid PMI (higher rate but no monthly PMI). Once you reach 20% equity, request PMI removal; lenders must cancel it at 22%.

Interest rate has a significant impact. On a $300,000, 30-year mortgage: at 6% your payment is $1,799/month; at 7% it's $1,996/month; at 8% it's $2,201/month. That's a $400/month difference between 6% and 8%—nearly $5,000/year. Over 30 years, the 8% loan costs about $145,000 more in interest than the 6% loan. This is why shopping for the best rate and improving your credit score before applying are so valuable.