Buying overview -> Estimate monthly expense

Estimate monthly expense

Taxes + insurance + mortgage = Total monthly housing expense

Use our total monthly housing expense calculator to estimate your total monthly housing expense or you may approximate the individual components of your monthly housing expense by using the shortcuts below.

Components of Monthly Housing Expense:
  • Mortgage principal (unless you have an interest-only loan)
  • Mortgage interest, including the interest on any home equity line or loan
  • Property tax, which in California is due twice a year, in November and February. However, when budgeting it is best to look at property tax as a monthly expense.
  • Homeowner’s insurance
  • Homeowner’s Association (HOA) dues for condominium buyers
  • Mortgage insurance, required if you are putting down less than 20% and have opted for mortgage insurance instead of a piggyback.

These numbers added together equal your pre-tax monthly housing expense.

 

Note: there are two additional expenses when you own a home, your monthly maintenance or upkeep, and home improvements. If you have been renting, upkeep has been pretty simple – when the roof leaks you call the landlord. This obviously won’t work when it is your house. Maintenance and upkeep are going to vary depending on the condition of the home you are buying, and how much of the work you can do yourself. Your real estate agent should be able to give you some idea of what these costs might be based on your new home’s condition. Home improvements are another wild card. If you are buying a ‘fixer’, factor that into your budget. Make sure that you have spoken with a contractor or someone experienced in renovations to be sure that you understand how much the work you plan on doing will cost.

 

Estimating the components of total monthly housing expense

Here are some handy tricks for estimating the different components of total monthly housing expense:

Mortgage payment: get an idea of where interest rates are from a lender or real estate agent and use our simple mortgage payment calculator or one of the many free apps for android or iPhone which will calculate a mortgage payment.

Property taxes: you will pay your property taxes twice a year unless you have impounds, but it is important to know what your property tax expense will be on a monthly basis. To get an estimate, drop the last three digits from the purchase price and add 5.00%, ex: $640,000 = $640 + $32 (5% of $640) = $672 per month (the formula is purchase price X .00105)

Homeowner’s insurance: here is the formula for a rough estimate of the monthly cost of homeowner’s insurance in the bay area: for a purchase price up to $750,000 use $125 per month, and add another $25 per month to that for each additional $250k in purchase price. Properties in a flood zone, on steep slopes, or in heavily treed areas may have higher, and sometimes much higher premiums.

HOA dues: If you are buying a condo you will have HOA fees which can range from $200 per month to over $1000; the median is around $450. Because this number can vary so widely from project to project, it is important to find out before making an offer what the the monthly dues are for the condo you are interested in. With a condo, although HOA dues will cover your primary insurance, your lender will require you to purchase an additional policy, HO-6, that will cost approximately $50 per month.

Mortgage insurance: the cost of the mortgage insurance varies depending on many factors, percentage down payment the most important. For a very rough estimate: if you are putting down 10% or more but less than 20%, figure that the monthly premium will be about 12% of the mortgage payment ; if putting down less than 10%, figure 17%. With an FHA loan, your monthly mortgage insurance premium will be about 22% of your mortgage payment.

I strongly suggest that you contact a lender early in the process. The guidelines above will only give you a rough estimate of a total monthly housing expense that can be affected by your loan type, your qualifications, the property, and many other factors.