Buying a nest together is an exciting and scary project. It's a commitment from the two of you for a long time as well as a ton of money. If, in the worst-case scenario, you split up, you'll still be on the hook for the loan. How much the loan ultimately ends up costing is based not only on the price of the home but on several additional factors, .
The total of your principal, or the amount of your loan, has a major impact on how much the home loan costs. The greater the loan, the more you have to pay back each month. For example a $200,000 loan at 5 percent interest for 20 years will cost $1,320 per month while a $300,000 loan at the same interest over the same term will cost $1,980 per month.
You could pay as much or more in interest over the total life of the loan as the principal. In the early years, almost all the monthly payment goes toward paying interest. Eventually, as the principal is paid down, the interest decreases. A $200,000 loan for 20 years at 2 percent interest will require total interest of $42,824 over the life of the loan, at 5 percent interest you'll pay a whopping $116,779.
Whether you qualify at all is based on your creditworthiness as well as job stability, how much debt you already have and how much you earn. The interest rate is based on the creditworthiness of both you and your sweetie if both of you are applying or both incomes are necessary to qualify. There is no joint FICA score. Each score is considered individually. If one of you has a low score, that will be the score the interest rate is based on -- rather than an averaged score.
Length of Time
Mortgages are offered for varying lengths of time, 15, 20 and 30 years being common. The monthly payment is higher for the shorter terms, but overall the loan costs less because it's being paid off quicker, so less interest is paid. A $200,000 15-year mortgage at 5 percent interest costs $1,582 a month for a total of $284,686. For a 20-year mortgage to purchase the same home for the same price, payments would be $1,320 a month for a total of $316,779. For 30 years, payments would be $1,074 a month, totaling $386,512.
Private Mortgage Insurance
You may have to include a payment for private mortgage insurance, PMI, if your down payment was less than 20 percent of the purchase price. When you've paid down the loan to where you have at least 20 percent equity, the PMI goes away.
Closing costs are negotiable with the seller and the lender. They include a range of fees, such as title search, appraisal and credit reports, application and underwriting fees, and points charged for a lower interest rate. Closing costs run between 3 percent and 5 percent of the total price of the home, according to Smart Money.
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