What a Mortgage Calculator Won't Tell You

If you’re thinking about buying a home, you’ve probably used — or at least heard of — a mortgage calculator. These nifty tools can help you figure out the price range of homes you may be able to afford and estimate your monthly mortgage payment. With an event as big as buying a home, it’s smart to take advantage of resources like mortgage calculators to help you make decisions.

But there’s more to determining home affordability than figuring out a mortgage payment, and you have to carefully assess your financial situation before you start worrying about fluctuating interest rates and home-price trends in your area.

Looking Beyond Interest Rates

You can plug all sorts of numbers into a mortgage calculator, but math won’t always tell you if you’re ready to buy a home. No matter what interest rates are at the moment, regardless of economists’ predictions of home prices, you have to ask yourself if now is the time for you to buy a home. There are a lot of personal factors to take into consideration — job security, family plans, other financial goals — and only you can measure how those aspects fit into the home-buying picture.

As far as interest rates and home prices go, yes, they’re both on the rise across the nation. We’re also heading into peak home-buying season, which will have an effect on prices and inventory, but just because you didn’t get a house last year when houses were less expensive doesn’t mean you missed your chance at homeownership.

“I think it is still a great time to consider a home purchase,” said TJ Freeborn, a mortgage expert at Discover Home Loans. “What I always encourage people to keep in perspective is, yes, rates may be a little bit higher than they may have been in the recent term, but if you look at the market over the last 10 or 15 years, rates are still near historic lows.” They’re at about 4.25% right now.

When it comes to number-crunching, take time to give yourself a clear picture of your finances. If you don’t track your spending, it may be a good idea to start, before you begin house hunting. Determine your expenses as a renter, because depending on where you live, investing in a home may be a significantly better deal than renting.

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“You have to take into consideration your current expenses and bump that up against what your potential situation may be,” Freeborn said. “Without having that conversation and that holistic perspective … I think it’s really easy right now for potential homeowners to say, ‘It’s not the time for me.'”

Don’t overlook the importance of your credit standing, either. If your credit score isn’t where you’d like it to be, make the effort to improve it in the months leading up to your house search. Taking out a mortgage is generally not an impulse buy, so you should have a fair amount of time to make some progress. If you need help figuring out how to work on your credit, you can see two of your credit scores for free on Credit.com and get a personalized plan for building your scores.

The Endless (Sometimes Overwhelming) Options

So you’ve taken the time to make sure your credit is in good shape and to gain a clear understanding of your current expenses. Next, you need to figure out what you’re looking for.

This is where it gets easy to overlook important expenses that come with buying a home: Closing costs, homeowners’ association fees, furnishings, maintenance, property taxes, renovation — the list goes on. It can go on for quite a while, hence the problem of forgetting about important things.

Don’t be afraid to ask for help. Freeborn recommends talking to an experienced mortgage banker when you start thinking about looking for a home. Allow their expertise to fill in your gaps in knowledge, and make sure they’re intimately familiar with your area, Freeborn said. If you’ve had friends or family buy a house nearby, ask them for a mortgage banker recommendation.

The most important thing is to focus on what is within your control: Your finances, credit standing and lifestyle preferences. Those things will tell you if it’s the right time to start house hunting more than housing market reports.

“There’s a lot that goes into affordability, and people should not be scared or even excited about where interest rates are right now,” Freeborn said. “There’s always an ebb and flow. It’s important to look at the all-encompassing picture.”