How big of a mortgage can I realistically afford?
"Let's start with income $80K. $6,667/mo. The 28/36 rule suggests you can pay up to $1867 for the mortgage payment, and $2400/mo total debt load. Payment on the full $260K is $1337, well within the numbers. The 401(k) loan for $12,500 will cost about $126/mo (I used 4% for 10 years, the limit for the loan to buy a house) but that will also take the mortgage number down a bit.  The condo fee is low, and the numbers leave my only concern with the down payment. Have you talked to the bank? Most loans charge PMI if more than 80% loan to value (LTV). An important point here - the 28/36 rule allows for 8% (or more ) to be ""other than house debt"" so in this case a $533 student loan payment wouldn't have impacted the ability to borrow. When looking for a mortgage, you really want to be free of most debt, but not to the point where you have no down payment.  PMI can be expensive when viewed that it's an expense to carry the top 15% or so of the mortgage. Try to avoid it, the idea of a split mortgage, 80% + 15% makes sense, even if the 15% portion is at a higher rate. Let us know what the bank is offering.  I like the idea of the roommate, if $700 is reasonable it makes the numbers even better. Does the roommate have access to a lump sum of money? $700*24 is $16,800. Tell him you'll discount the 2yrs rent to $15000 if he gives you it in advance. This is 10% which is a great return with rates so low. To you it's an extra 5% down. By the way, the ratio of mortgage to income isn't fixed. Of the 28%, let's knock off 4% for tax/insurance, so a $100K earner will have $2167/mo for just the mortgage. At 6%, it will fund $361K, at 5%, $404K, at 4.5%, $427K. So, the range varies but is within your 3-5. Your ratio is below the low end, so again, I'd say the concern should be the payments, but the downpayment being so low.  By the way, taxes - If I recall correctly, Utah's state income tax is 5%, right? So about $4000 for you. Since the standard deduction on Federal taxes is $5800 this year, you probably don't itemize (unless you donate over $2K/yr, in which case, you do). This means that your mortgage interest and property tax are nearly all deductible. The combined interest and property tax will be about $17K, which in effect, will come off the top of your income. You'll start as if you made $63K or so. Can you live on that?" You're biting off a lot. Let's say you can swing 5% for a down payment: $13k.  A 30-year loan on $247k at the rate you quote gives you a payment of $1,270 per month. This does not include taxes, insurance, or private mortgage insurance (which you'll pay because you have a down payment less than 20%).  The PMI will run you about $150-$200 per month, I think, until your loan-to-value ratio falls below 80%. Plus your HOA fee, utilities, your 401(k) loan payment, etc., you're pushing $2k/month. You have a roommate in mind, and that will help, but the roommate can go, and you still own the property.  Then you get the whole payment all to yourself. If I had the option, I'd rent a little longer.  Save up for a decent down payment, and shop around for someone who is desperate to sell. For me there are two issues.  So, what to do? You have the basics of a very strong position coming together. A good salary in a good city. I'd be patient and work on consolidating my position for another year to 18 months (including building a rainy day fund) and look to buy then. My primary concerns. There seems to still be a fair bit of distressed property (forclosures etc) on the market at current, which might well keep prices down for the next year or so that it takes to finish flushing that stuff out of the market.  The gist I get from most experts/pundits is that There will be good deals around for while to come still I'd advise you wait.  Go ahead and do the math to figure out what total you WOULD be paying would be, and charge yourself that much a mohth for rent in your current place, pocketing the difference in a savings account.  You'll be able to get a feeling for what it's like to live with that kind of house payment, and if you can do it sans any room-mate (something you can't always count on)  If you can manage it, then you have a much more realistic idea of what you can afford, AND you'll have saved up a bunch of money to help with a down-payment in the process.  If for example your Mortgage plus taxes and insurance ends up running around say $1450 a month, plus another $150 for the HOA, well then, that's charging yourself $1600 a month for your 'rent' which means $1000 per month going into the bank, in two years that's nearly the same as what you have now in the $401K, and you'd have a really good idea if you can afford that much per month in housing costs. If you are bound and determined to do this now, then here's a few other things to consider. You might to shop around a bit to see how typical those HOA fees are.   Yeah you don't have the expense and hassle of needing to mow the lawn, paint the place etc  but still,  150 a month translates to around another 1.5 mortgage payments a year. You might be able to get around PMI by splitting the mortgage into two pieces and doing a 'purchase money second' of around 15-20% and 75-70% of the value for the main mortgage.  That way the LoanToValue on your primary loan is under 80%, which could be worthwhile even if the interest rate on that second loan is a little higher (at least it's deductible, paying PMI is just money lost to you) although trying to do any kind of creative financing these days is a lot trickier If you are not planning on living in your condo for at least 10 years don't do it. For about 5 years your mortgage will be more then rent, after 5 years you start to break even and may start paying less. On the other hand, if you plan to be there for 10 years or more it might be a great savings tool, I bought a house 6 months ago for $240,000 on an $80k salary am getting by just fine and am able to save money (and I live on Long Island, an extremely expensive area to live). I would look at finding a few more interest rate quotes; for instance, Wells Fargo is offering 4.25% right now for FHA (first time home buyers) loan (which only require 3.5% down). A lower interest rate will lower your monthly payment. Make the banks compete with one another - this little bit of leg-work will save you thousands upon thousands of dollars in the long run). Also, try to negotiate to NOT paying a point down on the mortgage - most of the time they are bull, especially in this economy (banks are desperate for new loans).  However, as others have said, do not assume or count on rent coming in to be able to afford your mortgage (unless you are married). What if your friend moves out and you cannot find another tenant?  However, I strongly recommend you talk to a financial adviser and your bank mortgage loan officer to work out the numbers - you will be surprised what you can afford when you factor in your income tax and mortgage interest write-offs. $260k mortgage is pretty high for $80k salary alone -- if you have expensive tastes, be prepared to tune them down. The make or break for you will be taxes and other recurring fees. If property taxes are trending higher than inflation in your area, you'll have trouble down the line. Decisions like this are really market driven, and I don't know much about Salt Lake City. In general, condo values get punished relative to single-family homes during bad market conditions. So if this is a really nice condo in a good building in a desirable part of the city you're probably going to see the value of the property increase as the general economy improves. If the property is good, go for it.
"In most parts of the US, even the more expensive parts, a $100k income can afford the rent or mortgage on a reasonably safe* 2-3 bedroom home within an hour commute of your work, plus the means to commute, plus health insurance, plus retirement savings, plus at least some discretionary income (i.e., choice between living in a nicer neighborhood, eating out more often, buying brand-name apparel, etc). In some places, $100k affords a very comfortable lifestyle, with plenty of savings.   A lot of people who live in or around big, expensive cities think it is outrageous that their $100k income doesn't get them a designer apartment, a wardrobe full of fitted suits, eating out twice a week, two overseas vacations per year, etc. They confuse not having a Hollywood lifestyle, with being poor. Those are some of the most obnoxious people in the world.   *because this post is sure to draw the ire of some privileged people who think that ""reasonably safe"" means top 5%, I will offer the definition of ""reasonably safe"" as one of the top three quintiles of US zip codes with lowest violent crime rates per capita." Save up a bigger downpayment.  The lender's requirement is going to be based on how much you finance, not the price of the house. Not that I doubted everyone's assumption but I wanted to see the math so I did some spreadsheet hacking. I assumed a monthly payments for 30 years which left us with total payments of 483.89.  I then assumed we'd pay an extra $200/month in one of two scenarios.  Scenario 1 we just paid that $200 directly to the lender.  In scenario 2 we set the extra $200 aside every month until we were able to pay off the $10k at 7%.  I assumed that the minimum payments were allocated proportionately and the overpayments were allocated evenly.  That meant we paid off loan 5 at about month 77, loan 4 in month 88, loan 3 in month 120, loan 2 in month 165, and loan 1 in month 170. Getting over to scenario 2 where we pay $483.89 to lender and save $200 separately.  In month 48 we've saved $9600 relative to the principle remaining in loan 3 of $9547.  We pay that off and we're left with loan 1,2,4,5 with a combined principle of about $60930.  At this point we are now going to make payments of 683.89 instead of saving towards principle.  Now our weighted average interest rate is 6.800% instead of 6.824%.  We can calculate the number of payments left given a principle of 60930, interest of 6.8%, and payment of 683.89 to be 124.4 months left for a total of 172.4 months Conclusion: Scenario 1 pays off the debt 3 months sooner with the same monthly expenditure as scenario 2. "My recommendation is to pay off your student loans as quickly as possible. It sounds like you're already doing this but don't incur any other large debts until you have this taken care of.  I'd also recommend not buying a car, especially an expensive one, on credit or lease either. Back during the dotcom boom I and many friends bought or leased expensive cars only to lose them or struggle paying for them when the bottom dropped out. A car instantly depreciates and it's quite rare for them to ever gain value again. Stick with reliable, older, used cars that you can purchase for cash. If you do borrow for a car, shop around for the best deal and avoid 3+ year terms if at all possible. Don't lease unless you have a business structure where this might create a clear financial advantage. Avoid credit cards as much as possible although if you do plan to buy a house with a mortgage you'll need to maintain some credit history. If you have the discipline to keep your balance small and paid down you can use a credit card to build credit history. However, these things can quickly get out of hand and you'll wonder why you suddenly owe $10K, $20K or even more on them so be very careful with them. As for the house (speaking of US markets here), save up for at least a 20% down payment if you can. Based on what you said, this would be about $20-25K. This will give you a lot more flexibility to take advantage of deals that might come your way, even if you don't put it all into the house. ""Stretching"" to buy a house that's too expensive can quickly lead to financial ruin. As for house size, I recommend purchasing a 4 bedroom house even if you aren't planning on kids right away. It will resell better and you'll appreciate having the extra space for storage, home office, hobbies, etc. Also, life has a way of changing your plans for having kids and such." I'm not saying it's great, but I have a 705... I think we'll get a second opinion to lower that rate. Also, logically, with a higher down payment, we should be able to reduce the amount we need to borrow. Is that how that would work? For example, if we scrounged up a $7,000 for a down payment and came down on the price say $3,000 Two years ago, I wrote an article titled Student Loans and Your First Mortgage in response to this exact question posed by a fellow blogger.  The bottom line is that the loan payment doesn't lower your borrowing power as it fits in the slice between 28% (total housing cost) and 38% (total monthly debt burden) when applying for a loan.  But, the $20K is 20% down on $100K worth of house. With median home prices in the US in the mid-high $100Ks, you're halfway there.  In the end, it's not about finance, it's a question of how badly you want to buy a house. If I got along with the parents, I'd stay as long as I was welcome, and save every dollar I could. Save for retirement, save for as large a downpayment as you can, and after you buy the house, pay the student loan aggressively. I moved out the week after I graduated. No. This logic is dangerous.  The apples to apples comparison between renting and buying should be between similar living arrangements. One can't (legitimately) compare living in a 600 sq ft studio to a 3500 sq ft house.  With the proposal you offer, one should get the largest mortgage they qualify for, but that can result in a house far too big for their needs. Borrowing to buy just what you need makes sense. Borrowing to buy a house with rooms you may never visit, not a great idea.  By the way, do the numbers. The 30 year rate is 4%. You'd need a $250,000 mortgage to get $10,000 in interest the first year, that's a $312,000 house given an 80% loan. On a median income, do you think it makes sense to buy a house twice the US median?  Last, a portion of the tax savings is 'lost' to the fact that you have a standard deduction of nearly $6,000 in 2012. So that huge mortgage gets you an extra $4000 in write-off, and $600 back in taxes.  Don't ever let the Tax Tail wag the Investing Dog, or in this case the House Dog.  Edit - the investment return on real estate is a hot topic. I think it's fair to say that long term one must include the rental value of the house in calculating returns. In the case of buying of way-too-big house, you are not getting the return, it's the same as renting a four bedroom, but leaving three empty.  If I can go on a bit - I own a rental, it's worth $200K and after condo fee and property tax, I get $10K/yr. A 5% return, plus whatever appreciation. Now, if I lived there, I'd correctly claim that part of my return is the rental value, the rent I don't pay elsewhere, so the return to me is the potential growth as well as saved rent. But if the condo rents for $1200, and I'd otherwise live in a $600 apartment with less space, the return to me is lost. In my personal case, in fact, I bought a too big house. Not too big for our paycheck, the cost and therefore the mortgage were well below what the bank qualified us for. Too big for the need. I paid for two rooms we really don't use. "Here in the UK, the rule of thumb is to keep a lot of equity in your home if you can. I assume here that you have a lot of savings you're considering using. If you only have say 10% of the house price you wouldn't actually have a lot of choice in the matter, the mortgage lender will penalise you heavily for low deposits. The practical minimum is 5%, but for most people a 95% mortgage is just silly (albeit not as silly as the 100% or greater mortgages you could get pre-2008), and you should take serious individual advice before considering it. According to Which, the average in the UK for first-time buyers is 20% (not the best source for that data I confess, but a convenient one). Above 20% is not at all unusual. You'll do an affordability calculation to figure out how much you can borrow, which isn't at all the same as how much you should borrow, but does get you started. Basically you, decide how much a month you can spend on mortgage payments. The calculation will let you put every penny into this if you choose to, but in practice you'll want some discretionary income so don't do that. decide the term of the mortgage. For a young first-time buyer in the UK I think you'd typically take a 25-year term and consider early repayment options rather than committing to a shorter term, but you don't have to. Mortgage lenders will offer shorter terms as long as you can afford the payments. decide how much you're putting into a deposit make subtractions for cost of moving (stamp duty if applicable, fees, removals aka ""people to lug your stuff""). receive back a number which is the house price you can pay under these constraints (and of course a breakdown of what the mortgage principle would be, and the interest rate you'll pay). This step requires access to lender information, since their rates depend on personal details, deposit percentage, phase of the moon, etc. Our mortgage advisor did multiple runs of the calculation for us for different scenarios, since we hadn't made up our minds entirely. Since you have not yet decided how much deposit to make, you can use multiple calculations to see the effect of different deposits you might make, up to a limit of your total savings. Putting up more deposit both increases the amount you can borrow for a given monthly payment (since mortgage rates are lower when the loan is a lower proportion of house value), and of course increases the house price you can afford. So unless you're getting a very high return on your savings, £1 of deposit gets you somewhat more than £1 of house, and the calculation will tell you how much more. Once you've chosen the house you want, the matter is even simpler: do you prefer to put your savings in the house and borrow less and make lower payments, or prefer to put your savings elsewhere and borrow more and make higher payments but perhaps have some additional income from the savings. Assuming you maintain a contingency fund, a lower mortgage is generally considered a good investment in the UK, but you need to check what's right for you and compare it to other investments you could make. The issue is complicated by the fact that residential property prices are rising quite quickly in most areas of the UK, and have been for a long time, meaning that highly-leveraged property investment appears to be a really good idea. This leads to the imprudent, but tempting, conclusion that you should buy the biggest house you can possibly afford and watch its value rises. I do not endorse this advice personally, but it's certainly true that in a sharply rising house market it's easier to get away with buying a bigger house than you need, than it is to get away with it in a flat or falling market. As Stephen says, an offset mortgage is a no-brainer good idea if the rate is the same. Unfortunately in the UK, the rate isn't the same (or anyway, it wasn't a couple of years ago). Offset mortgages are especially good for those who make a lot of savings from income and for any reason don't want to commit all of those savings to a traditional mortgage payment. Good reasons for not wanting to do that include uncertainty about your future income and a desire to have the flexibility to actually spend some of it if you fancy :-)" I'm confused why you think you need a $450k house. That seems extremely high in today's market except perhaps in certain major urban locations. If you're going to live in suburbia or a smaller town/city, you should be able to find a nice 3br house for well under $300k. Before you rule out buying a house, I'd spend some time researching the real estate listings in your area, foreclosures, properties owned by bankruptcy court, etc. - you might be surprised to find a great home for as low as $150-200k. Of course if you live in a place where what I'm saying is completely off-base, please disregard my answer. If you have a 20,000 balance and a 8.75% interest rate, you should be paying between $145 and $150 in interest each month, with the balance going to principal.  (0.0875/12=0.007292, and that times 20,000 is 145.83; as interest is compounded daily, it'll be a little higher than that.)  If the minimum is below $145, then you are not covering the interest; I suspect that is what is happening here, and they're reporting interest paid that wasn't covered in a prior month (assuming you have some months where you only pay the statement minimum, which is less than the total accrued interest). Assuming you're in the US (or most other western countries), your loan servicer should be explaining the exact amount each payment that goes to principal and interest.  I recommend calling them up and finding out exactly why it's not consistent; what should be happening, assuming you pay more than the amount of interest each month, is the interest should go down (very) slowly each month and the amount paying off principal should go up (also slowly).  EG: Etc., until eventually the interest is zero and your loan is paid off.  It probably won't go this quickly for this size of loan - you're only paying off a tiny percentage of principal each month, $50/$20000 or 1/400th - so you won't make too much headway at this rate.   Even adding another $25 would make a huge difference to the length of the loan and the amount of interest paid, but that's another story.   You will eventually at this rate pay off the loan (at $200 a month for all 12 months); this isn't dissimilar to a 30 year mortgage in terms of percent interest to principal (in fact, it's better!).  $50 a month times twelve is $600; 400 payments would take care of it (so a bit over 30 years).  However, as you go you pay more principal and less interest, so you will actually pay it off in 15 years if you continue paying $200 a month exactly. What you may be seeing in your case is a combination of things: In months you pay less (ie, $100, say), the extra $45 in interest needs to go somewhere.  It effectively becomes part of the principal, but from what I've seen that doesn't always happen directly - ie, they account it differently at least for a short time (up to a year, in my experience). This is because of tax laws, if I understand correctly - the amount you pay in interest is tax-deductible, but not the amount of the principal - so it's important for you to have as much called 'interest' as possible.  Thus, if you pay $100 this month and $200 next month, that total of $300 is paying ~$290 of interest and $10 of principal, just as if you'd paid it $150 each month. If you had any penalties, such as for late payments, those come out off the top before interest; they may sometimes take that out as well. All in all, I strongly suggest having an enforced minimum (on your end) of the interest amount at least; that prevents you from being in a situation where your loan grows.  If you can't always hit $200, that's fine; but at least hit $150 every single month.  Otherwise you have a never ending cycle of student loan debt that you really don't want to be in. Separately, on the $1000 payment: As long as you make sure it's not assigned in such a way that the lender only accepts a month's worth at a time (which shouldn't happen, but there are shady lenders), it shouldn't matter what is called 'principal' and what is called 'interest'.  The interest won't go up just because you're making a separate payment (it'll go down!).  The portion that goes to interest will go to paying off the amount of interest you owe from the time of your last payment, plus any accrued but unpaid interest, plus principal.  You won't have the option of not paying that interest, and it doesn't really matter anyway - it's all something you owe and all accruing interest, it only really matters for accounting and taxes.  Double check with your lender (on the phone AND on their website, if possible) that overpayments are not penalized and are applied to principal immediately (or within a few days anyway) and you should be fine. "There are far more questions to be addressed here than one answer can address. Let me work backwards, and start with the easy part - ""I make $120K/yr, what can I afford?"" You are making $10K/mo. A great income. A well written mortgage will allow you to use 28% for housing, that's the mortgage, property tax, insurance, and HOA. On $2800, let's take out $500 for prop tax, and just $300 for insurance. I'll even ignore HOA for now. The remaining $2000/mo will fund a mortgage of $400K. That's not close to a $700K condo.  A $550K mortgage would cost $2800/mo, and $3600 with tax and insurance, $4100 with HOA. Over 40% of your gross and a sign that you are in over your head.  The real question is why you'd want to do this. $1600/mo rent means you can save $2000/mo in addition to what you already save if you stay put." "I'm a little confused on the use of the property today.  Is this place going to be a personal residence for you for now and become a rental later (after the mortgage is paid off)?  It does make a difference. If you can buy the house and a 100% LTV loan would cost less than 125% of comparable rent ... then buy the house, put as little of your own cash into it as possible and stretch the terms as long as possible.  Scott W is correct on a number of counts.  The ""cost"" of the mortgage is the after tax cost of the payments and when that money is put to work in a well-managed portfolio, it should do better over the long haul.  Don't try for big gains because doing so adds to the risk that you'll end up worse off. If you borrow money at an after-tax cost of 4% and make 6% after taxes ... you end up ahead and build wealth. A vast majority of the wealthiest people use this arbitrage to continue to build wealth.  They have plenty of money to pay off mortgages, but choose not to.  $200,000 at 2% is an extra $4000 per year.  Compounded at a 7% rate ... it adds up to $180k after 20 years ... not exactly chump change. Money in an investment account is accessible when you need it.  Money in home equity is not, has a zero rate of return (before inflation) and is not accessible except through another loan at the bank's whim.  If you lose your job and your home is close to paid off but isn't yet, you could have a serious liquidity issue. NOW ... if a 100% mortgage would cost MORE than 125% of comparable rent, then there should be no deal.  You are looking at a crappy investment.  It is cheaper and better just to rent.  I don't care if prices are going up right now.  Prices move around.  Just because Canada hasn't seen the value drops like in the US so far doesn't mean it can't happen in the future.  If comparable rents don't validate the price with a good margin for profit for an investor, then prices are frothy and cannot be trusted and you should lower your monthly costs by renting rather than buying.  That $350 per month you could save in ""rent"" adds up just as much as the $4000 per year in arbitrage. For rentals, you should only pull the trigger when you can do the purchase without leverage and STILL get a 10% CAP rate or higher (rate of return after taxes, insurance and other fixed costs).  That way if the rental rates drop (and again that is quite possible), you would lose some of your profit but not all of it.  If you leverage the property, there is a high probability that you could wind up losing money as rents fall and you have to cover the mortgage out of nonexistent cash flow. I know somebody is going to say, ""But John, 10% CAP on rental real estate?  That's just not possible around here.""  That may be the case.  It IS possible somewhere.  I have clients buying property in Arizona, New Mexico, Alberta, Michigan and even California who are finding 10% CAP rate properties.  They do exist.  They just aren't everywhere. If you want to add leverage to the rental picture to improve the return, then do so understanding the risks.  He who lives by the leverage sword, dies by the leverage sword.  Down here in the US, the real estate market is littered with corpses of people who thought they could handle that leverage sword.  It is a gory, ugly mess." Considering your question, I have been in the market for a house to buy. There is a house that I   like and I wanted to know if I could afford it. You state your Assets: Awesome! Current Income:  Great job putting $1000/month into your 401k!  That is $12,000/year saved for retirement. Excellent! Current expenses: Why do you want to buy a house for more than 4x your gross income, and 3x median house price (U.S.)?  Are you planning on living in the house for at least 5-7 years?  There is a risk that interest rates will rise, and that will affect your ability to sell the house. Expected expenses: Adding your other essentials, You are considering increasing your expenses by $1000-1200/month. Looking at the amounts you quoted for direct housing expenses, you will have committed $2600/month to a mortgage payment.  Adding your other estimated essentials, you will spend over $3700/month (leaving $2200/month for everything else). You may have higher utilities for a house than an apartment, you are doing well with your food budget, and your cellphone is lower than many.  You anticipate $650/month ($7800/year) tax savings (be careful, congress is looking for ways to increase tax revenue). You want to keep your essential expenses under 50% (much more than 50% is difficult, and I am trying to get to 40%).  You may live in an area where housing costs are an out-sized expense.  But an option would be to save more, and a larger down payment could lower the monthly expenses below that 50% mark. You probably won't get a mortgage. UDSA has a 41% ratio of monthly debt to monthly income limit, and a score of 660 or better. A 250,000 mortgage at current rates for 30 year mortgage is about $1560/mo. (included in this figure is the 1% mortgage insurance premium, the .4% annual fee, the current rate for a 660 credit rating, the 2% points fee added at the front of the mortgage, typical closing cost added to transaction, and the .5% fee for over-mortgage insurance for the first 3 years since your mortgage will be higher than the value of the house due to these additional fees) Credit card payments = $120 ($60 times 2) Car payments = $542 ($271 for your car, $271 for the car you will be getting) Student loan = $50/month Child Support = $500/month Total = $2772/month Your income per month is 82000/12 = $6833/month $2772/$6833 = 40.6%...  This is awfully close to the limit, so they likely would also look at your ability to save.  Not seeing savings in the above example, I assume it is low.  USDA site One mortgage help site breaks down some of the requirements into layman's language. Not knowing your exact location (county/state) and how many children you have, it is hard to be sure whether you make too much to qualify.  This link shows the income limits by number of people in the house and the county/state.  There are few places in which you could be living that would qualify you to any of their programs unless you have a several children. As others have posted, I suggest you get your debt down. The key question is whether this number includes taxes and insurance. When you get a mortgage in the U.S., the bank wants to be sure that you are paying your property taxes and that you have homeowners insurance. The mortgage is guaranteed by a lien on the house -- if you don't pay, the bank can take your house -- and the bank doesn't want to find out that your house burned down and you didn't bother to get insurance so now they have nothing. So for most mortgages, the bank collects money from the borrower for the taxes and insurance, and then they pay these things. This can also be convenient for the borrower as you are then paying a fixed amount every month rather than being hit with sizeable tax and insurance bills two or three times a year. So to run the numbers: As others point out, mortgage rates in the US today are running 3% to 4%. I just found something that said the average rate today is 3.6%. At that rate, your actual mortgage payment should be about $1,364. Say $1,400 as we're taking approximate numbers. So if the $2,000 per month does NOT include taxes and insurance, it's a bad deal. If it does, then not so bad. You don't say where you live. But in my home town, property taxes on a $300,000 house would be about $4,500 per year. Insurance is probably another $1000 a year. And if you have to get PMI, add another 1/2% to 3/4%, or $1500 to $2250 per year. Add those up and divide by 12 and you get about $600. Note my numbers here are all highly approximate, will vary widely depending on where the house is, so this is just a general ballpark. $1400 + $600 = $2000, just what you were quoted. So if the number is PITI -- principle, interest, taxes, and insurance -- it's about what I'd expect.