Key calculations involved in buying a home

Down Payment Calculation:

  • Down payment amount: This is the upfront portion of the purchase price you pay out of pocket. The minimum down payment typically ranges from 3.5% to 20%, depending on the loan type and lender requirements.
  • Calculation: Down payment amount = Purchase price x Down payment percentage


  • Purchase price: $400,000
  • Down payment percentage: 15%
  • Down payment amount = $400,000 x 15% = $60,000

Mortgage Loan Amount Calculation:

  • Mortgage loan amount: This is the remaining amount you borrow from the lender to finance the purchase.
  • Calculation: Mortgage loan amount = Purchase price – Down payment amount

Using the same example from above:

  • Mortgage loan amount = $400,000 – $60,000 = $340,000

Monthly Mortgage Payment Calculation:

  • This calculation is more complex and requires additional factors:
    • Loan amount
    • Interest rate (fixed or variable)
    • Loan term (length of the mortgage in years)
  • You can use an online mortgage calculator to find your estimated monthly payment. Most banks and financial institutions offer free mortgage calculators on their websites.

Additional Costs:

  • Factor in closing costs: These are one-time fees associated with processing the loan and finalizing the purchase. Closing costs can vary depending on location and lender, but typically range from 2% to 5% of the purchase price.
  • Estimate property taxes and homeowners insurance: Research average rates in your area to get a ballpark figure. You’ll need to factor these ongoing costs into your monthly budget.

Affordability Calculation:

  • A crucial step is assessing how much home you can afford. There are various methods, but a common rule of thumb is keeping your total housing costs (mortgage payment, property taxes, and homeowners insurance) below 36% of your gross monthly income.

Remember: These are estimations. It’s wise to consult with a mortgage professional or lender to get personalized calculations based on your specific situation and financial goals. They can also help you explore different loan options and guide you through the pre-approval process.