by Pennee Struckman

Created on: August 26, 2009

If you are hoping to buy a house, you will need to have a down payment available. Depending on the type of loan you qualify for, your down payment can be zero, 20% or 3% of the price paid for the house. Having a down payment is required for most loans. The larger the down payment, the lower the interest rate and points you pay when financing your house.

Down payments used for a conventional loan can qualify you for lower interest rates. If you can save the 20% required for conventional loans, you will not have to pay the PMI insurance required for a lesser down payment.

For an FHA loan, you will need 3%, but 2% can be a gift from your parents or another source. An FHA requires PMI insurance, regardless of the down payment amounts.

PMI insurance is private mortgage insurance. It protects the lender in case of a default on the loan. The PMI calculation is based on the amount borrowed times the factor for the type and length of the loan. There are differing factors for Conventional, ARM and FHA loans. On average, the PMI can add $25-$100 to your monthly mortgage payment.

For a conventional loan, you can calculate what your monthly payments will be if you put down 20%, or put down less and take the PMI insurance. This amount includes the monthly loan repayment, the monthly escrow and the PMI insurance.

But, before you begin the calculation, decide whether you will pay the points at closing, or add these to the amount of the loan.

Points are traditionally calculated as 1% of the loan amount. Points are classified as Origination Points, which allow the lender to recoup the amounts of fees paid to process the loan, and Discounted Points, which essentially lower the interest rate you pay.

To calculate your monthly loan payment

The formula to calculate the monthly payment is the loan amount divided by 1000 times the annual interest rate.

Decide how much you would like to finance. Take this amount, divide it by 1000 and multiply it by the interest rate of the loan.

For example, if you borrowed $145,520.00 for 30 years at 6.07611%, you would divide $145,520.00 by 1,000. The result is $145.20. Multiply this by 6.07611 to get a monthly payment of 882.55. ($145.20 x 6.07611)

To calculate the monthly escrow

Escrow is similar to a savings account, and is added to the monthly payment. Most lenders want an extra two months in the escrow account. To find out much escrow you will pay monthly, add your last year's property tax and home insurance bills.

• 1
• 2
• Next Page >>