When you buy a home, it’s important to consider all of the costs involved. The monthly mortgage payment covers the principal on the loan — but it also includes other expenses like interest, homeowners insurance, property taxes, and more. Calculating the costs of a $400,000 mortgage can help you check whether the payment fits into your budget.
Your monthly mortgage payment consists of more than just your home cost. When calculating your total payment, make sure you look at everything it consists of, including:
- Principal payment: This is the part of your payment that goes to your principal balance on your mortgage.
- Interest: Your interest is what you pay on top of your principal for the opportunity to borrow your loan. Sometimes that’s a variable interest rate, which might change regularly, or a fixed interest rate, which doesn’t change for the life of the loan.
- Taxes: You’re on the hook for property taxes, which usually go into an escrow account that your mortgage lender manages.
- Insurance: There are a few different types of insurance you may have to pay for. Most home lenders require homeowners insurance to protect your home in case of a disaster. If you put less than 20% down on a conventional home loan, you’re also required to have private mortgage insurance. Both payments come out of the escrow account managed by your lender.
- HOA fees: If you live in a neighborhood with a homeowners association, you might have to pay for related fees or HOA fees. You might also see condominium fees. These might come out annually, quarterly, or monthly, depending on the fee structure where you live. This isn’t required for all homeowners but it might be part of your payments.
Below, we show a few potential monthly payments based on a fixed interest rate and repayment terms with a 10% down payment. The mortgage calculator pulled in sample costs for homeowners insurance and property taxes based on a ZIP code in South Florida. Your mortgage payment may vary based on these factors.
You can apply for a mortgage with any bank or credit union that offers this type of financing. Before applying, it may help to get prequalified to see whether you’re eligible for a loan. This step doesn’t trigger a hard credit check.
After getting prequalified, you can complete a pre-approval application with several different lenders. It’s important to complete these pre-approvals close together, ideally within a few weeks. This tells credit bureaus you’re rate shopping, and your credit score will lower for one mortgage loan application, rather than many hard credit checks for many different applications.
The median home sale price in the United States was over $412,000 in the second quarter of 2024, so a $400,000 mortgage is on track for many people buying a home right now. You’ll need to explore both the short-term and long-term costs for your home.
Your down payment is the amount you’ll pay upfront to lower the total cost of how much you borrow through a home loan. The larger your down payment, the less you’ll borrow, which means the less you’ll need to pay back, with interest. A higher down payment also means lower monthly payments than if you didn’t have a down payment at all.
Your credit score helps determine your interest rate and whether you qualify for a mortgage. A poor credit score could hold you back from getting approved for a home loan. If you are approved with a lower score, you could face much higher interest rates compared to someone who has good or excellent credit.
When you get a lower interest rate, you’ll pay less to take out your home loan. Excellent — a score of 800 or higher — credit typically helps you get the lowest interest rate offered by the lender. But the lower your credit score, the more likely you are to pay a higher interest rate.
Your debt-to-income ratio (DTI) shows a lender how much debt you have compared to the amount you earn. A high DTI looks risky to lenders and could hurt your chances of borrowing a home loan for the full amount you need. With a lower DTI, you’re more likely to get approved for larger loan requests.
Mortgages vary in repayment terms, ranging from 10 years to upward of 30 or sometimes 40 years. A longer repayment term means it’ll take you longer to repay your outstanding loan balance in full. However, it could also mean more affordable monthly payments that you may not otherwise be able to afford.
Here’s an amortization schedule for a $400,000 mortgage on a 30-year term and a 6% fixed rate:
Here’s an amortization schedule for a $400,000 mortgage on a 15-year term and a 6% fixed rate:
When it’s time to get a mortgage, you’ll need to have some important details and documents at the ready:
The 28% rule is a guideline that says you shouldn’t spend more than 28% of your pre-tax monthly income on housing expenses. If you take the example of $2,683 from the earlier table (the monthly payment on a 30-year mortgage with a 5% APR), that would be 28% of a gross monthly income around $9,582. So, the monthly mortgage payment would be affordable if you make at least $114,984. Keep in mind that a higher interest rate usually means a bigger monthly payment.
The total interest you pay over the life of the loan will depend on your interest rate and loan term. For example, if you take out a $400,000 loan with a 30-year repayment term and a 7% interest rate, you’d pay $558,035.59 in interest. The interest you pay drops if you choose a shorter repayment term — $247,156.36 with a 7% rate but a 15-year term. You can use a mortgage calculator to see how much interest you’ll pay with different rates and terms.
There are two major factors to consider: economic conditions and your financial situation. While you have some influence over your readiness, interest rates and the economy are harder to predict. The Federal Reserve has held the federal funds rate steady for over a year, but a cut might be considered in September. In addition, more homes are going on the market as construction begins to catch up to demand — a study from Realtor.com found the number of unsold homes in July was up 22% compared to last year. Analysts predict rates will continue to dip and housing supply will increase, leading to a gradual improvement of the housing crunch.
When you assess your readiness, ask yourself if you’re in the financial position to buy a house — do you have enough savings to cover closing costs, a down payment, monthly mortgage payments, and still set aside money for other goals such as investing, retirement, or renovations? If your credit score is below 600, you may want to improve it by paying down some debt before taking out a mortgage.
If you’re making a 20% down payment, it would cost $80,000. If you’re getting a conventional loan, your lender might allow you to make a smaller down payment but you may be required to pay for private mortgage insurance. A smaller down payment, for example 5% to 10%, could cost $20,000 to $40,000.
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