Estimating monthly costs: Mortgage on a $250,000 house

Quick insights

• The monthly costs for a mortgage on a $250,000 house will vary depending on the interest rate, loan terms and the size of the down payment.
• The percentage of your monthly income spent on debts is one of the factors lenders use to determine if you can afford a loan.
• Saving for unexpected expenses—in addition to a down payment and closing costs—can help you remain financially flexible as you become a homeowner.

If you’re exploring the possibility of buying a $250,00 home, you may be wondering how big the monthly mortgage payment will be and how it will fit into your budget. In this article, we'll walk through what contributes to a mortgage payment. We’ll demonstrate how to make important calculations, which can provide deeper understanding into how you can optimize your purchase and budget.

Calculating the monthly payment on a $250,000 home mortgage loan

There are several factors that go into determining a potential monthly payment on your mortgage, including the total loan amount, interest rate and loan term. The size of the down payment you make on your home can also reduce the overall loan principal and consequently shrink the size of your monthly payment.

Mortgage payment formula for principal and interest

The monthly payment for a mortgage loan can be calculated using the following formula:

M = P[ r(1+r)ⁿ ] / [ (1+r)ⁿ⁻¹ ]

• P represents the loan principal.
• r is the monthly interest rate.
• n is the number of payments.

Example calculation of the costs

Here’s how the formula can be applied to a $250,000 home purchase with certain figures:

• Loan principal: $200,000, the amount being financed, assuming a 20% down payment.
• Monthly interest rate: 7% fixed, the cost to borrow the loan principal.
• Number of payments: 360 payments, the amount over a 30-year term.

Following the formula, a $250,000 home would have a monthly payment of approximately $1,330. Shorten the term to 15 years, and the monthly payment increases to about $1,800. Mortgage calculators can help with various aspects of homebuying, especially if the tool accounts for more than just principal and interest.

Other possible monthly costs

Besides your principal and interest payment, homeowners insurance and property taxes can affect how much your mortgage costs. Plus, if you put less than 20% down on a conventional mortgage loan, lenders typically require you pay private mortgage insurance (PMI) for a certain period. These ongoing costs can vary but are typically worth adding to what you anticipate a $250,000 home will cost.

Upfront costs

The down payment and closing costs are important to know when buying a home. Both affect how much borrowers should save for a home purchase, while the down payment specifically affects loan terms and, therefore, the monthly mortgage payment.

Down payment

When it comes to buying a home, most people will not finance the home’s full purchase price. Instead, it’s typical for a borrower to make a down payment of 3–20% of the home’s value. On a $250,000 home, a 20% down payment would be $50,000, reducing the mortgage’s principal to $200,000. With a smaller loan principal, the monthly payment would also reduce to $1,330.60.

Closing costs for a $250,000 home

“Closing costs” refers to an assortment of fees and charges related to buying a home, such as appraisal fees, title insurance, attorney fees and private mortgage insurance. Closing costs often range from 2–5% of the home’s total purchase price.ec-closing-cost-calc For a $250,000 home, 2–5% cash due at closing could amount to $5,000–12,500.

Total cost of a mortgage for a $250,000 house

Here are some approximate calculations of how much a conventional mortgage loan for a $250,000 home could cost.

30-year fixed-rate mortgage (20% down, 7% interest):

• Total interest paid: $279,020
• Total of 360 mortgage payments: $479,020

15-year fixed rate mortgage (20% down, 7% interest):

• Total interest paid: $123,580
• Total of 180 mortgage payments: $323,580

The calculations include principal and interest payments made on schedule for the life of the loan. The totals don’t include the more variable expenses of buying a home, such as homeowners insurance, property taxes and maintenance.

Affording a $250,000 home

Lenders typically assess multiple factors of an applicant’s financial profile, including (but not limited to) their credit score, their income and their debt. Although lenders take steps to ensure that potential borrowers can afford the loan, it can be helpful for buyers to conduct their own affordability assessment. Learning how to run the numbers yourself can help you confidently pursue a home purchase that will be sustainable for you.

Debt-to-income ratio (DTI)

A person’s debt-to-income ratio (DTI) is typically a factor lenders review for mortgage eligibility. Debts included in DTI calculations include recurring expenses like student loans, auto and credit card payments. To calculate DTI, divide your total monthly debt payments by your total monthly income, then multiply it by 100.

The required income for a $250,000 home

When applying for a mortgage on a $250,000 house, you may want to ensure that you have a DTI of 36% or below. This is sometimes used more as a benchmark for affordability than your income by itself. Of course, additional aspects of your finances are also important factors in determining how affordable a $250,000 house is.

How to get a mortgage on a $250,000 home

Here are several important and common steps toward getting a mortgage:

• Step 1: Assess affordability. Before you start working with lenders, you may want to conduct your own affordability assessment using the calculations above. Affordability calculations like those described in this article can provide a strong start.
• Step 2: Get pre-approved. Compare potential lenders using their rates and customer reviews. Then, apply for pre-approval—this isn’t an actual loan (yet), but preapproval helps indicate to sellers you’re ready to buy a home. Your preapproval can also provide a baseline for the home you can afford because the review is based on important and specific financials.
• Step 3: Select a home. Working either independently or with a professional real estate agent, compare homes in your ideal location and make your offer.
• Step 4: Complete closing. If your offer is accepted, you can move forward with the homebuying process. In this last phase, you may conduct additional inspections and work with your chosen lender to finalize the loan. This is when you’ll finalize calculations for your upfront and monthly costs of getting a mortgage.

Bottom line

There are many factors that go into calculating affordability for a $250,000 home loan. By applying formulas to your own finances, you may find that you can anticipate all the costs and refine your homebuying budget. For assistance with your mortgage-related questions, consider reaching out to a Chase Home Lending Advisor.