Why is the Mortgage Payment Higher than the Online Payment Calculator?

April 17, 2014 — Leave a comment

Has this ever happened to you? You’re surfing around on one of the many googolplexian (the biggest number in the world…with a name) of real estate websites wishing, dreaming of that new home but thinking the homes you’re looking at online are a little out of reach. Then you’re eyes are immediately fixated on that nifty little calculator…you know the one that assuredly tells you whether or not you can ‘afford’ this home. So, you plug in some parameters and, voila! it spits out a monthly payment that looks doable. You’re excited beyond words!

That’s when I typically get the phone call and, after going through my pre-purchase mortgage planning consultation, excited Joe & Jane Homebuyer are feeling, well, rather deflated. Why?

The mortgage payment calculators online NEVER seem to account for Texas’s higher property taxes and insurance premiums. Ever!

For example, I looked at some homes online where I live here in Southlake, TX and was blown away! According to all the big real estate search sites and a smattering of local real estate agent’s sites I can buy a $500,000 for only $2500 p/month! In fact, here’s a screen shot from one of the biggest search sites. Where do I sign!??!!trulia mortg pymt

I see several concerns with this payment…..let me count the ways:

  1. Property Taxes are NOT $415 p/month – they’re closer to $962 p/mo (it even shows actual taxes further down the page!?)
  2. Homeowner’s Insurance would NOT be $124 p/mo – it would be closer to $225 p/mo
  3. The quoted interest rate – after reading the fine print this rate included discount points to ‘buy down’ the rate. These interest rates are from mortgage banks paying to advertise. Think about it from their perspective – if they advertised the actual current market rate there’d be no reason for you to call them.

What’s the REAL payment versus the ADVERTISED payment?

Using actual property taxes, a more realistic interest rate of 4.5% (4.685% APR), and a more realistic estimate for homeowner’s insurance surprisingly the monthly payment jumps from $2,524 to $3,282!

My friend, that’s a difference of $758 per month! Talk about being ill prepared!

The BEST thing you can do for you and your family is to get fully preapproved (NOT just prequalified) before you begin looking at homes. Gain the confidence you want and need while you’re out shopping for homes.  Get the facts and figures as early as you can.

I would love to help – you can reach me at cole@coleholmes.com anytime!

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