If you are trying to decide if you can afford a mortgage or you are already on the hunt for a home, you should know the average monthly mortgage payment to put your home purchase into perspective. This could make the decision easier on what type and how costly a home to buy, especially if you find that an average mortgage is the same as your rent, sometimes even cheaper.
If you want to find out what type of mortgage you can afford, you can use a mortgage estimator, which will take into account your annual house income, your monthly debts and what you can afford to put down on a home.
An average American is paying just over $1,500 a month on their mortgage according to the U.S. Census Bureau. This is just a ballpark number as it can vary depending on the size of the home and the location of the property.
A mortgage payment is made up of the principal, interest, property taxes and homeowner’s insurance. So you may see advertisements stating that a home’s mortgage could be as little as $700 a month, those four main legs of the mortgage most likely were not factored into that price. The principal is the sum that you borrowed from your lender or the amount you are expected to pay back at some point in time. This is why you should not take out an interest-only mortgage because it will force you to waste a lot of money on paying only interest and no principal.
Your property taxes depend on where you decide to buy your home. Some cities and towns have higher property taxes than others. A property assessor will find out how much your home is worth and use that figure to find out your property taxes. You also need to buy homeowner’s insurance. It is a must-have to make sure you and your family as well as your worldly belongings are all covered in case of emergency or disaster.
Mortgages are also driven by the location of the home. It is found that homeowners in the Northeast and on the West Coast pay more for their homes than homeowners anywhere else in the United States. It could be because their incomes are higher on average than others in different parts of the country, however, home buying in general in these locations is more of a financial stretch then it is elsewhere.
You also want to try to be able to put at least 20% down on your home, but this is often difficult for first-time buyers. If you are able to put less down, that is still better than nothing, because you end up paying for mortgage insurance as well as more interest. The 20% down payment helps bring down the monthly mortgage payments substantially.
Since you now have an idea how a mortgage is calculated and what you can expect to pay, you can figure out what you can afford in a mortgage. You get a ballpark figure from a mortgage calculator, but you should always consult with a mortgage professional because, just like mortgages in general, there are a lot of hidden fees when it comes to buying a home.