Your monthly mortgage payment will be made up of four parts: principal, interest, taxes and insurance (PITI). For purposes of our calculations, we’ll be focusing on principal and interest, but keep this in mind: The total amount you’ll pay in principal and interest each month can vary significantly depending on your interest rate and the length of your loan term. It’s time now to delve into how both of these factors, along with other factors, impact a $400,000 mortgage payment.
How Term Length Impacts A $400K Mortgage
Simply put, the shorter your mortgage term length, the higher your mortgage payment will be each month. That’s because you’ll have less time to pay off the total principal balance and you’ll have to do so in significantly fewer payments. For example, on a $400K mortgage with a 7% fixed rate, the monthly payment on a 15-year loan is $3,595. The payment on a 30-year loan, by comparison, is $2,661. Just keep in mind that neither amount factors in the cost of insurance or property taxes, which will both be included in your monthly payment.
Consider, too, that although you’ll pay more each month with a 15-year mortgage than you’d pay monthly with a 30-year mortgage, you’re likely to have a lower interest rate on the 15-year plan since rates tend to be lower on shorter-term mortgages. For example, with all other factors being equal, the interest rate on a 30-year $400,000 loan might be 7.9%, while the rate on a 15-year loan for the same amount might be 6.9%.
How Interest Rate Impacts A $400K Mortgage
As already noted, another factor that will impact your monthly mortgage payment on a $400K loan is the interest rate you qualify for. The higher the interest rate, the higher your monthly payment. Sticking with the example in the section above, a 30-year $400K mortgage at a 7% interest rate would have a monthly payment of $2,661. Meanwhile, the same 30-year $400K mortgage at a 7.5% interest rate would have a monthly payment of $2,797, taxes and insurance not included.
While the aforementioned examples use a fixed-rate mortgage for simplicity, it’s possible that you could choose an adjustable-rate mortgage. With this option, home buyers have an introductory rate for an agreed-upon time period after which their interest rate can go up, down or both, depending on how the market fluctuates over time.
What Determines Your Mortgage Rate?
Your interest rate is determined not only by your term length, but by other factors that include market interest rates, your credit score, your loan-to-value ratio, your down payment and the loan program of your choosing. Your interest rate will also be affected by your individual lender, so be sure to compare rate quotes from different lenders to see who’ll provide you with your best option.
Additional Costs To Consider
As mentioned, in addition to the principal and interest associated with your mortgage, you’ll have to factor some other costs into your monthly mortgage payment. Specifically, many lenders require that you pay into an escrow account every month to cover the cost of homeowners insurance and property taxes. And, if you’re taking out a conventional loan but putting down less than 20%, you’ll need to pay private mortgage insurance – leading to an even higher monthly payment.
If you live in a home connected to a homeowners association (HOA), you’ll also have to pay monthly or yearly HOA dues for various amenities that the HOA provides to residents of the neighborhood. Like interest rate, loan term, insurance costs and property taxes, HOA dues can affect the affordability of a $400K mortgage.
Your payment should not be more than 28%. of your total gross monthly income. That means you'll need to make 11,500 dollars a month, or 138 k per year. in order to comfortably afford this 400,000 dollar home.
Your minimum down payment for a $400K house with a pure conventional loan can be $80,000. However, read about piggyback loans, which may get you many of the advantages of a 20% down payment if you've only saved 10%.
For example, at current mortgage rates, borrowers with an FHA loan and a 10% down payment would need to earn about $70,000 a year to afford a $400,000 house. Borrowers with a conventional loan and a 20% down payment would need a salary of $100,000 or more.
As of January 9, 2024, the national average mortgage rate for a 30-year fixed-rate mortgage is 7.06%. With these terms, if you bought a $400,000 house and put 20% down, your monthly mortgage payment would be $2,141. With these numbers, though, your total interest payment would be $451,844 throughout the loan.
If you make $70K a year, you can likely afford a home between $290,000 and $310,000*. Depending on your personal finances, that's a monthly house payment between $2,000 and $2,500. Keep in mind that figure will include your monthly mortgage payment, taxes, and insurance.
Assuming you have a 5% down payment (which is what would be required for an FHA loan) and less than 6% in other debts per month (~$500) you could afford a $400,000 home on a $100,000 salary. This number could change substantially, however, depending on if you have a bigger down payment or less debt.
Most mortgages, including conventional loans, require a credit score of 620 or higher. It's possible to get an FHA loan with a credit score as low as 500, but many lenders require higher scores.
At a 7.00% fixed interest rate, your monthly mortgage payment on a 30-year mortgage might total $2,661 a month, while a 15-year might cost $3,595 a month.
The rule of 2.5 times your income stipulates that you shouldn't purchase a house that costs more than two and a half times your annual income. So, if you have a $50,000 annual salary, you should be able to afford a $125,000 home.
If you make $70K a year, you can likely afford a home between $290,000 and $310,000*. Depending on your personal finances, that's a monthly house payment between $2,000 and $2,500. Keep in mind that figure will include your monthly mortgage payment, taxes, and insurance.
On a $350,000, 30-year mortgage with a 6% APR, you can expect a monthly payment of $2,098.43, not including taxes and interest (these vary by location and property, so they can't be calculated without more detail). The payment would jump to $2,953.50 for a 15-year loan.
In today's climate, the income required to purchase a $500,000 home varies greatly based on personal finances, down payment amount, and interest rate. However, assuming a market rate of 7% and a 10% down payment, your household income would need to be about $128,000 to afford a $500,000 home.
Introduction: My name is Kimberely Baumbach CPA, I am a gorgeous, bright, charming, encouraging, zealous, lively, good person who loves writing and wants to share my knowledge and understanding with you.
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