Tennessee housing market
Tennessee is a relatively inexpensive real estate market, compared to the rest of the U.S. The median home value in Tennessee is $200,762, according to Zillow. This is about 24% lower than the median home value in the United States, which currently sits at $262,604.
Real estate prices have been on the rise in 2020 throughout the United States. This has been fueled by a combination of record low mortgage rates and a historically low supply of homes. Nationwide, the median home value has increased by 6.6% over the past year. Tennessee’s market has been even hotter — the typical home has seen an 8.1% increase in value compared with a year ago.
How do I calculate my mortgage payment?
The short answer is that it’s tough to calculate a mortgage payment by hand. The easiest way to do it is with a Tennessee mortgage calculator like the one at the top of this article. But if you insist on doing it the long way, here’s the mortgage payment formula.
Let’s say you’re borrowing $200,000 to buy a home and take out a 30-year mortgage at 3% interest.
You would use 200,000 as the principal, 360 for the number of months, and 0.03 as the interest rate. This would result in a monthly principal and interest payment of about $843.
Whether you are mathematically inclined and want to calculate your payment by hand or you’re using a Tennessee mortgage calculator, it’s important to understand the different types of costs that go into your mortgage payment. One common misconception among first-time buyers is that the mortgage payment is only made up of principal and interest on the money you borrow. But as you’ll see from this list, that’s not the full story.
Home price and down payment
The first component of your mortgage payment is repaying the principal — that is, the amount of money you borrowed from the mortgage lender. This is determined by two main factors: the amount you agree to pay for the home, and your down payment.
For example, if you agree to buy a home for $200,000 and put 10% ($20,000) down, your principal loan amount will be $200,000 (home value) – $20,000 (down payment) = $180,000 (amount from your lender).
You can vary the amount of your down payment and home value in the above Tennessee mortgage calculator to get an idea of how the principal affects your monthly mortgage payment.
Your interest rate determines the fee you’ll pay for borrowing money. This is given as an annual percentage. In our Tennessee mortgage calculator above, you can experiment with different interest rates to see how they impact your mortgage payment.
For example, if you owe $200,000 and have a 5% interest rate, your interest accumulates at a rate of $10,000 per year (because $10,000 is 5% of $200,000). However, every time you make a payment, the amount you owe declines. Therefore, interest accumulates slower as time goes on. This concept is known as mortgage amortization.
If you’re curious about how much of each mortgage payment will be used toward principal and interest, ask your lender for a document known as the loan’s amortization schedule.
And if you’re curious about what mortgage rate to expect, check out the currentTennessee mortgage rates.
Most homebuyers in the United States choose a 30-year mortgage term with a fixed interest rate. There are other terms available, ranging from 10 to 30 years. Usually, a longer term means a lower monthly payment — but it also means you’ll pay more interest over time.
And generally speaking, you can get a lower interest rate if you’re willing to choose a shorter term.
Wondering how this affects you? Try using the Tennessee mortgage payment calculator above to calculate the monthly payment for a 20-year loan term versus a 30-year loan term. You can even look up 20-year mortgage interest rates to get an idea of the difference in interest costs.
Property taxes and insurance
Virtually all mortgage lenders require homeowners to pay property taxes and insurance along with their mortgage payments. That way, the lender is assured these expenses are getting paid. For this reason, mortgage payments are often referred to as PITI (principal, interest, taxes, and insurance).
These expenses can be tough to estimate before you start to shop for a home. If you don’t know these numbers yet, don’t panic — we’ve auto-filled example numbers into the Tennessee mortgage calculator above, so you can get a rough estimate of monthly mortgage costs. Once you decide on a particular home, exact numbers for these items won’t be hard to find. Property taxes are publicly available, and you can get a homeowners insurance quote easily.
It’s also worth noting that if you live in a neighborhood with a homeowners or condo association, it’s not uncommon for the lender to ask you to pay those dues with your monthly mortgage payment as well. We have a place for you to include this in the Tennessee mortgage calculator above (click “Additional Inputs”).
Things to know before buying a house in Tennessee
Tennessee has below-average property tax rates. According to U.S. Census Bureau data, the median property tax bill in Tennessee is 0.68% of home value. This makes Tennessee one of the 10 states with the lowest taxes.
However, it’s worth noting property taxes are somewhat determined by local governments, not just by the states. Property taxes can vary significantly depending on where you are within Tennessee. You might want to look up the property taxes of a few areas you’re considering moving to, then use those numbers in the above Tennessee mortgage calculator to get a more accurate idea of your potential mortgage payments.
According to insurance.com, homeowners insurance premiums in Tennessee are the 16th most expensive in the nation. This can also vary dramatically based on the particular home and location.
Tips for first-time homebuyers in Tennessee
Tennessee has an excellent loan program for first-time homebuyers called the Great Choice Home Loan program, created by the Tennessee Housing Development Agency. The loan is designed for households of mid-to-moderate incomes, which vary by county.
The Great Choice Home Loan is a 30-year, fixed-rate mortgage product that requires a minimum credit score of 640 from everyone on the application. Loans have a minimum 3.5% down payment (most are technically FHA loans). But homeowners who use the program can also use the Great Choice Plus down payment assistance program to get up to $7,500 more towards their down payment and closing costs. To be clear, the down payment assistance is a second loan, not a grant. But it can get Tennessee homebuyers a zero-down mortgage in many cases.
Whether you’re buying for the first time or refinancing an existing property, make sure you shop around top mortgage lenders or best refinance lenders to get the right deal for you. Use a Tennessee mortgage calculator (like the one above) to make sure your mortgage fits your budget, –then enjoy your new home.
View more information: https://www.fool.com/the-ascent/mortgages/tennessee-mortgage-calculator/