How do I calculate my mortgage payment?
Calculating your mortgage payment by hand can be a nightmare. A spreadsheet can help, but because mortgages amortize, every month will be a little bit different and doing it manually can introduce a lot of errors. That's why we built mortgage calculators like this one. But, if you really want to do the math yourself, this is the formula to use:
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Your basic mortgage payment, made up of just your principal and interest charges (often known simply as "PI" or "P+I") is the result at the end of this calculation. Although the payment is the same each month, the allocation of interest and principal is different, with the principal increasingly making up more of the payment as your balance decreases and interest charges become less.
Your base mortgage payment is made up of just three simple variables: how much you borrow, the rate at which you borrow it, and how long you need to pay it back. However, your actual monthly mortgage payment consists of more than just P+I.
Mortgage payments typically also include principal, interest, real estate taxes, and homeowners insurance, commonly called PITI. Additional fees like homeowners association (HOA) assessments are sometimes also included in the mortgage payment, and extra insurance for related natural disasters can also be wrapped in.
One last thing -- if you have a smaller than 20% down payment (like most Americans), you will likely also have to pay for mortgage insurance. There are two different kinds. If you buy with a conventional loan, you'll have private mortgage insurance (PMI). FHA loans have mortgage insurance premium (MIP) instead. They serve essentially the same function (protecting the lender in case you don't make payments), but can vary in price.
To calculate your new mortgage with these additional expenses included, just click "show additional inputs" on the mortgage calculator above and add your estimated figures. It will get you a very close estimate of what to expect.
Things to know before buying a house in Arkansas
Arkansas homes are priced very well compared to the national average, though some areas are still seeing double-digit appreciation. Even so, the property taxes in Arkansas are among the lowest in the country, and only four states have lower tax rates. The average tax rate in the state is 0.52% of a property's assessed value. So, for example, if your home is assessed at $102,900, your taxes for the year are just $532.
Arkansas hasn't seen significant impacts from climate change yet, but the EPA does expect that it will get warmer. The biggest threats to life and property today and into the future will be rainfall. Although Arkansas is already a fairly green state, climate change has caused heavier rainfall which is also creating more significant flooding events. Despite this, there's also a serious risk of droughts in the future as days become hotter and periods of rainfall spaced out further.
In addition, earthquakes are a risk in extreme northeastern Arkansas, within the New Madrid Seismic Zone.
With this variety of risks to your home, it will pay to speak to your insurance agent about disaster insurance supplemental to your homeowners insurance for the specific part of Arkansas where you'll be moving. Your agent should be able to advise you on what's appropriate, even if it's not required, to help protect your home from future loss. You'll want to use this figure along with your other insurance costs when calculating your payment with the Arkansas mortgage calculator.
Tips for first-time home buyers in Arkansas
The Arkansas Development Finance Authority (ADFA) offers two types of assistance to first-time home buyers. One is the ADFA Move-Up First Mortgage, which is a conventional conforming loan with a 30-year term and a fixed mortgage rate. It can be combined with ADFA Down Payment Assistance (DPA). The ADFA DPA offers up to $15,000 for down payment and closing costs assistance that matches the terms of the first mortgage, except that the term is just 10 years.
In addition, due to Arkansas' large stretches of rural wilderness, many areas and homes may qualify for USDA rural development loans. These programs often get buyers into homes with no money down, even if it's not their first home purchase. They're income based, though, so check with the USDA agents in the county where you wish to purchase to see if you qualify.
Advice for all first-time borrowers
Whether you qualify for a first-time home buyer program in Arkansas or not, you can still apply for other loans with appealing terms for first timers, like FHA loans or conventional loans. Both have low down payment requirements, making them easier to secure, and can be used on a vast array of homes.
In order to qualify for any mortgage, you'll want to work hard to make yourself into the best candidate. Here are a few tips:
- Boost your credit score with on-time payments and low credit card utilization
- Pay off debt to improve your debt-to-income ratio
- Secure a steady job (or don't leave your current job)
- Save for both closing costs and your down payment
In addition, guard your credit carefully by not opening any new accounts or applying for credit too soon before your loan application. Each time you apply or open a new credit account, your credit will take a little hit. Inquiries take two years to fall off your credit report, so plan accordingly.
Fact Checked
Ashley Maready
