First-Time Home Buyer Mortgage Calculator

Try it three ways before you decide

Most first-time buyers do not have 20% and do not need it. Move the down payment slider and watch two things: the loan gets bigger, and under 20% a mortgage insurance line appears. The three cases worth running on any home you are serious about:

• 3.5% down. The FHA minimum with a credit score of 580 or more. The payment carries FHA's mortgage insurance, which is charged differently from the PMI this calculator shows (see below), so treat the figure as close rather than exact.
• 5% to 10% down. A conventional loan with private mortgage insurance. The insurance is cheaper the more you put down and the higher your score, and it goes away.
• 20% down. No mortgage insurance at all. Compare the payment to the 5% case: the difference is what the extra down payment buys you each month, and it is often smaller than people expect, which is why waiting years to save 20% can cost more in rent than it saves.

What the figure is made of

Principal and interest is the loan repaid in equal monthly instalments over the term, at the rate you enter. A 15-year term has a much higher payment and much less total interest; the calculator shows both, and for a first home the 30-year payment is the one to qualify on, since you can always pay extra.

Property tax is estimated at 1.1% of the price a year, near the national median. Rates run from under 0.5% in some states to over 2% in others, and the listing or the county assessor's site will have the actual bill for the home; put it in under "Taxes, insurance and HOA". Home insurance defaults to $1,500 a year and depends on the home, the location and the coverage. HOA dues apply only to a home in an association, and the lender counts them in your payment the way it counts the taxes.

Mortgage insurance is what a lender charges for a loan with less than 20% down. On a conventional loan it is private mortgage insurance (PMI), estimated here at 0.75% of the loan a year; the real premium runs from about 0.3% to over 1.5% depending on your credit score and how far under 20% you are. You can ask for it to be cancelled once you owe 80% of the home's original value, and the lender must drop it at 78%, under the federal Homeowners Protection Act. On an FHA loan the insurance is a 1.75% premium added to the loan at closing plus an annual premium, and with under 10% down it stays for the life of the loan, which is the main reason people with good credit refinance out of FHA once they have equity. FHA vs conventional, side by side.

The programs that get a first-time buyer in with less

• FHA (HUD): 3.5% down with a 580 score, 10% down between 500 and 579. The easiest approval and the most expensive insurance.
• Conventional 3% down: Fannie Mae's HomeReady and Freddie Mac's Home Possible for buyers under an income limit for the area, and the standard 97% loan for first-time buyers at any income. Needs a 620 score or better, and PMI that ends.
• VA (VA.gov): zero down and no monthly mortgage insurance for eligible service members, veterans and surviving spouses; a one-time funding fee instead, waived for a service-connected disability.
• USDA (USDA Rural Development): zero down for a home in an eligible rural or small-town area, under an income limit, with a small guarantee fee in place of PMI. More of the country qualifies than the name suggests.
• Down payment assistance: state housing finance agencies, cities and counties run grants and second loans that cover some or all of a down payment, usually for first-time buyers under an income cap. Five programs most buyers never hear about, and how to find the local ones.

To model any of these, set the down payment to the program's minimum. For VA and USDA, open "Taxes, insurance and HOA" and know that the mortgage insurance line the calculator adds under 20% does not apply to you.

What the lender is actually checking

The calculator tells you what you would pay. The lender decides what you can borrow, on three things:

• Credit score. It sets the rate you are offered and, below 620 on a conventional loan, whether you are offered one at all. A score in the 700s gets a rate that can be a quarter to half a point better than one in the 600s, which on a $380,000 loan is roughly $60 to $120 a month. What moves a score in the months before applying, and the card habits that quietly sink an application.
• Debt-to-income ratio. Your total monthly debt payments, the new mortgage payment included, as a share of your gross monthly income. Under 36% is comfortable; conventional loans generally allow up to 45% and sometimes 50% with strong credit and reserves, FHA somewhat more. Take the calculator's total, add your car payment, student loans and card minimums, and divide by your monthly pay before tax: that is the number an underwriter sees.
• Cash to close. The down payment plus closing costs, which run about 2% to 5% of the price for lender fees, title, appraisal, prepaid taxes and insurance. On a $400,000 home with 5% down, that is $20,000 down plus $8,000 to $20,000 more. Sellers can pay part of it, and the low-down-payment programs allow it. Where first-time buyers actually find the cash.

Before you look at homes, get pre-approved: the lender pulls your credit and verifies your income, and tells you the loan amount and the rate you actually qualify for. It costs nothing, it is what a seller's agent asks for with any offer, and it turns this calculator from an estimate into your budget. How pre-approval works and what to bring.

Rent or buy?

Compare the calculator's payment to your rent, but not directly: part of the mortgage payment is principal you keep, the interest and property tax may reduce your income tax, and a home costs money to maintain that a rental does not. The breakeven, worked through.

When you have a number you can live with, "See what rate you qualify for" sends the loan you priced to a licensed lender in your state, who comes back with a real quote instead of an average.