Every mortgage is different and payments depend on its size and terms. The 30-year fixed-rate mortgage has the same payments for the life of the loan. A 15-year fixed-rate mortgage also has established payments but they are higher because of the shorter time span. Adjustable-rate mortgages, or ARMs, have low starter rates. With a five-year ARM your payments are steady for five years, but the rate could go up or down each year after that.
The sheer number of variables in each home purchase and loan means there is no average mortgage cost. Your mortgage payment depends on how much you pay for the house, your income, your down payment, the type of mortgage and how high your credit score is.
Your Credit Score
With a very good credit score (680–699), the monthly payments on a $200,000 house would be $1,033, if you got a mortgage rate of 4.7 percent. If your credit score was fair (660–679) and your mortgage rate was 4.9 percent, you would pay $1,059 monthly for the same house. For a house costing $150,000, you would pay $775 a month with very good credit, and $794 with fair credit.
What you pay depends on how much you can afford. A quick way to figure out what your monthly payment should be is to determine the pretax (or gross) monthly income(s) of the loan signer(s), Suppose that your combined gross monthly income is $6,250, or $75,000 per year divided by 12. Most lenders do not want you to spend more than 28 percent of your monthly income, or $1,750 (6,250 x 0.28) on a mortgage payment. This is called a front-end ratio. The insurance and property taxes that you must pay are usually included with your mortgage payment, and they are not included in these estimates.
To figure the back-end ratio, which tops out at 36 percent of your gross income, add your recurring monthly payments, such as auto loans, student loans, minimum credit card payments, and alimony or child support to your monthly mortgage payment of $1,750. If these payments totaled $400 a month, you would have a monthly debt of $2,150. Multiply your gross monthly income of $6,250 by 0.36 and you will come up with $2,250 which gives you a little leeway. That is the most you can pay per month for your mortgage and other mandated payments. These guidelines should provide a good estimate as to what a workable mortgage payment would be for you.
The FHA Option
Federal Housing Administration mortgages, which are insured by the U.S. Department of Housing and Urban Development, are more lenient. As of this article's date of publication, the front-end ratio can be as high as 31 percent and the back-end ratio can climb to 41 percent.
A native Chicagoan, Carolyn Siegel has been writing since 1996. Her articles have appeared on Interest.com and Bankaholic.com, where she specializes in personal finance issues, and her mortgage articles have appeared in newspapers nationwide. Siegel holds a Bachelor of Arts in advertising from Michigan State University.