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Build A Mortgage Calculator

The first step in financing your home is figuring out how much money you need to borrow. By building a mortgage calculator, you can have a reliable estimate before seeking financing. While there are a wide variety of free online software packages that will help you build a calculator, you can do it yourself as well.

Mortgage Calculator:

In Excel, enter these column headers: Rate, Number of Payments, and Mortgage Amount. You’ll then enter your annual interest rate, repayment period, and amount financed under the appropriate headers. Remember to correctly enter percentages – for example, an 8 percent interest rate would be entered as 0.8.

You can then calculate your monthly mortgage payment using the Payment function in Excel. Using a blank cell, type "=PMT", then in parenthesis put the Rate figure, followed by the Number of Payments figure, followed by the Mortgage Amount figure. Close the parenthesis, then press enter. The formula should look like this: =PMT(Rate, Number of Payments, Mortgage Amount). This will tell you how much you’ll be paying monthly to finance your home.

How Much is Required for a Down Payment?

Down payments vary by transaction, but the general rule is that the larger the down payment, the easier it can be to get a loan. Most lenders prefer at least 20 percent down and require at least 5 to 10 percent down.

If you are unable to put down 20 percent, you’ll have to get private mortgage insurance. Also known as PMI, this insurance protects the lender against the risk of default and also allows borrowers with little cash to buy a home. PMI makes it possible for borrowers with as little a down payment as little as 3 to 5 percent to become homeowners.

Video: Private Mortgage Insurance (PMI)

If you do not have a down payment, you may be able to qualify for a first-time homebuyer’s program. These are programs sponsored by state, government, or other local organizations. Otherwise, you may be able to apply for a piggyback loan, which allows you to borrow 80 percent of your home’s purchase price while getting a second mortgage to cover the balance.

One word of caution for those with no down payment: Think twice about whether you can afford a home. If you have no money for a down payment at this time, you may want to wait until you can put some money down before attempting to buy property.

Will I Need an Escrow Account?

An escrow account is established to keep money that is owed by one party to the other. The money is transferred on a set date to which both parties agree. Escrow accounts function much like bank accounts and are opened by the escrow agent.

You will need an escrow account to hold your money until the transaction is completed. At that time the funds will be transferred to the seller.