Buying your first home is exciting—but it can also feel overwhelming, especially when it comes to understanding your mortgage. The good news is that calculating your loan doesn’t have to be complicated. With a few simple steps, first-time buyers can learn exactly how much house they can afford, what their monthly payments will be, and how to avoid costly surprises. For a full walkthrough of all mortgage strategies, explore our Complete Mortgage Guide
This guide is designed to walk first-time buyers through the essentials of mortgage calculation in clear, simple language.
1. Start with the Basics: PITI
First-time buyers often focus only on the loan and interest, but your monthly mortgage payment typically includes more:
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Principal – The money you borrow.
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Interest – The cost of borrowing.
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Taxes – Property taxes, usually paid into escrow.
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Insurance – Homeowners insurance, and possibly PMI (private mortgage insurance).
Together, these are called PITI, and they represent your real monthly payment.
2. Collect the Key Numbers
Before calculating, gather the following:
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Home Price – The purchase price of the property.
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Down Payment – How much you can pay upfront. If it’s less than 20%, PMI usually applies.
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Loan Term – Commonly 15, 20, or 30 years.
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Interest Rate – The annual rate offered by your lender.
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Taxes & Insurance – Estimated annual costs from your lender or local tax office.
3. Understand the Mortgage Formula
The formula for your monthly payment (principal and interest) is:
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M = Monthly payment
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P = Loan principal (home price – down payment)
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r = Monthly interest rate (annual ÷ 12)
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n = Total number of payments (years × 12)
4. Example for a First-Time Buyer
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Home Price: $250,000
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Down Payment: $25,000 (10%) → Loan = $225,000
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Interest Rate: 6% (0.005 monthly)
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Term: 30 years (360 payments)
Base payment (P+I): ≈ $1,349/month
Now add:
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Taxes: $200/month
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Insurance: $100/month
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PMI: $75/month (until you reach 20% equity)
Total Payment = $1,724/month
5. Smart Tips for First-Time Buyers
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Budget Conservatively – Aim for a payment that’s no more than 25–30% of your take-home pay.
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Factor in Closing Costs – These can add 2–5% of the purchase price upfront.
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Consider Loan Programs – FHA, VA, and USDA loans may allow lower down payments.
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Plan for PMI – If you can’t put 20% down, understand how PMI works and when it can be removed.
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Use Extra Payments Wisely – Even a small extra amount each month can save years of interest.
6. Common Mistakes First-Time Buyers Make
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Focusing only on the house price instead of the monthly payment.
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Underestimating taxes and insurance.
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Not leaving room for maintenance costs.
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Forgetting about future expenses like furniture, renovations, or family planning.
Conclusion
As a first-time buyer, calculating your mortgage loan is the first step toward making a confident and informed purchase. By understanding PITI, applying the formula, and planning for taxes, insurance, and PMI, you’ll get a clear picture of what you can truly afford.