Use a Mortgage Calculator to Figure Out What to Beware of When Buying a Home

The first step is to figure out your borrowing power with the bank. This is the amount of money the bank will loan you based on your income, or marital income. The bank calls this your debt to income ratio. They factor in all your monthly payments and come up with an amount of money that they feel you should be able to afford.

Then you need to start looking for a home in the price range they give you. You should beware of a few things. When the bank tells you the amount you can borrow, it includes the monthly mortgage payment, taxes, insurance and if the there's a condo fee. So if you just look at the mortgage payment then you'll think you can afford a lot more than you actually can. Also make sure to factor in all the new expenses you'll incur because you're most likely upgrading and more expenses come with a bigger home.

Another thing to beware of is PMI (Principal Mortgage Insurance). The bank charges PMI until you've paid 20% down on the home. The reason for this is the security of the bank getting their money back. If you buy a $100,000 home and owe $95,000 then the bank will have a difficult time getting all of their money back if you fault the loan. However, if you only owe $80,000 then they will most likely be paid back in full. Less risk for the bank means less money for you.

The last thing to beware of are interest rates. They have ARM rates, fixed rates, interest only loans and more. Check them all, the meaning of them all and their current rates. They will all be different and offer different perks for different situations. They are all explained on The Free Mortgage Calculator website. You can also use a free mortgage calculator to determine your borrowing power with the bank.