Do the math: Mortgage for a $100,000 home

Quick insights

• To calculate the monthly payment for a $100,000 home, you will need to know the loan term and interest rate, which can vary by loan applicant.
• A $100,000 home purchase may be reduced with a down payment; there may also be additional closing costs due at the time of purchase.
• Calculating your own DTI can help you understand if the monthly payment on a home will be affordable for your budget.

If you’re planning to buy a $100,000 home, you may be wondering what your monthly payment will be and how the expense will fit into your finances. Determining monthly affordability is key when considering a mortgage. In this article, we’ll explain mortgage essentials, the calculation of the monthly payment and important aspects of affordability.

Calculating the monthly payment after buying a $100,000 home

The monthly payments for a $100,000 home will vary depending on the specific principal, rate and term a homebuyer is approved for. Mortgage payments are typically spread out over 15 to 30 years by a process called amortization. Each payment includes principal (a payment toward the original loan amount) and interest (the rate paid to borrow the principal).

Key factors in the monthly mortgage formula

Here’s the formula for calculating the monthly interest and principal payment:

M = P[ r(1+r)n ] / [ (1+r)n−1 ]

• P represents the loan principal. The total amount borrowed, also referred to as the loan principal.
• r is the monthly interest rate. Interest represents the rate paid to borrow the loan amount. It can vary depending on the applicant’s credit score, the loan type and broader market conditions.
• n is the number of payments. The length of time over which the loan must be repaid, commonly 15 or 30 years.

Using these figures, you can apply a standard formula to determine the monthly payment.

Example calculation

Following the formula above, a $100,000 mortgage loan with a 30-year term and a 6.5% fixed interest rate would have a monthly principal and interest payment of approximately $632. However, with a 20% down payment, a 30-year loan at the same rate would have a monthly payment of approximately $505 (using the same formula).

Additional monthly mortgage costs

For conventional loans, private mortgage insurance (PMI) is typically required if less than 20% of the purchase price is put down. The cost of these monthly premiums and how long they’re due to your lender can vary. You may also want to factor in homeowners insurance and property taxes to the total cost of a $100,000 home. These costs vary by location, property type and coverage, among other factors, so a more specific mortgage calculator can create more specific estimates.

Mortgage costs due up front

As we continue to examine the finances of a $100,000 home purchase, keep in mind some important upfront costs. These are not included in your monthly payment:

• Down payment: Most buyers do not finance the full home purchase price with a mortgage. Instead, buyers can typically make a down payment that is 3-20% of the purchase price. If you made a 20% down payment on a home worth $100,000, your loan principal would be reduced to $80,000, which would also reduce your monthly payments.
• Closing costs: “Closing costs” can refer to several additional expenses associated with buying a home, including (but not limited to) inspection fees, appraisal fees, property taxes and private mortgage insurance. Closing costs typically range from 2–5% of the home’s value.1 On a $100,000 home, an additional 3.5% for closing costs would be $3,500.

Total cost calculations

Assuming 20% down on a $100,000 home (an $80,000 loan principal), here are some approximate costs if monthly payments are made on schedule.

30-year fixed rate mortgage at 6.5%:

• Total interest paid: $102,000
• Total of 360 mortgage payments: $182,000

 15-year fixed-rate mortgage at 6.5%:

• Total interest paid: $45,400
• Total of 180 mortgage payments: $125,400 

Keep in mind these don’t include variable costs like insurance and taxes.

How much income do I need for a $100,000 home?

Calculating mortgage affordability is about more than just your income. Besides upfront costs, your existing debt obligations important to budgeting for a new mortgage. Lenders generally want to ensure that a borrower does not have debts which could threaten their ability to repay the loan. This is assessed with debt-to-income ratio (DTI), a percentage showing how much monthly income goes toward paying your debts, such as student loans, car payments and credit cards.

How to get a mortgage for a $100,000 home

When you’re ready to move forward with the home-buying process, affordability calculations like the ones explained in this article can help give you a strong start.

• Step 1: Assess affordability. Take time to review your financial situation, including your monthly budget, current debt and savings. The final figures will vary by property and location. However, you can estimate the monthly principal an interest payment to help confirm if a mortgage for a $100,000 home will work for your budget.
• Step 2: Get pre-approved. Research possible mortgage lenders, comparing their rates and reviews. Then, get pre-approved for a loan to indicate your intention to buy a home. This can help clarify a mortgage that is affordable based on your financial information.
• Step 3: Select a home. Find a property that’s in your ideal location and budget before making an offer.
• Step 4: Complete closing. If your offer is accepted, you can move into escrow. During this period, you may conduct additional inspections and finalize your loan.

Bottom line

As you now know, monthly payments depend on several factors, including interest rate and loan term. When you’re assessing a potential home’s affordability, it’s important to estimate the closing costs, your potential down payment, the monthly payment and your current debt-to-income ratio. For assistance, you may want to consider contacting a Chase Home Lending Advisor.