Taking out a mortgage is a big financial move. Not only will it result in what’s likely your biggest monthly expense to date, but it can also have a major impact on your credit score.
If you stay on top of your payments and make them on time, every time, you’ll see a credit boost. Fall behind, and your score could plummet — or you might even face foreclosure.
This is why it’s critical to understand the costs of your loan before signing on that dotted line. You should know what payments you’ll owe, how much interest you’ll pay over the life of the loan, and how the new mortgage could impact your personal finances. Are you considering taking out a $300,000 mortgage? Here are the costs you should prep for before you do.
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The exact cost of a mortgage for a $300,000 house depends on the interest rate you get. For example, a $300,000 mortgage payment over 30 years at a 7% rate would come to about $1,996 toward your mortgage principal and interest. If the interest rate were lower, the monthly payment would be reduced as well.
Here’s the monthly payment on a $300,000, 30-year fixed-rate mortgage at various interest rate levels.
The above costs are just for 30-year mortgage loans. If you were to choose a 15-year loan instead, the payments would be higher (though you’d pay off your loan faster and owe less in long-term interest).
Here’s what the monthly payment on a $300,000, 15-year loan would look like at different interest rates.
These monthly payments do not include costs for homeowners insurance, property taxes, private mortgage insurance (PMI), or homeowners’ association dues. Use our mortgage calculator to add these monthly costs to your payment estimate. (And keep in mind that these are costs that often change from year to year. This could mean your payment rises or falls, too).
Dig deeper: 15-year vs. 30-year mortgage — How to decide which is better
Again, the interest you’ll pay on a $300,000 home loan will depend on the mortgage interest rate you qualify for. With a 7% rate, as in the above example, you’d pay $418,527 over a 30-year period.
Here’s what your total interest costs would look like with different interest rates:
As you can see, the difference in total interest costs can be significant — even with just a small rate adjustment. (For instance, getting a 6% rate versus a 7% one would save you more than $70,000 over the long haul.)
Remember that fixed-rate mortgages are amortized, allowing you to make the same payment toward principal and interest every month for the full term of your loan. Because of this, you pay more toward interest at the beginning of the loan term, and less toward the end of it.
Below is the amortization schedule for a 30-year $300,000 mortgage at a 6.75% interest rate. Your monthly payment toward the principal and interest would be $1,945.79. Below, you can see how much you’d pay toward the principal and interest each year.
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The exact amount of income you’ll need to qualify for a $300,000 mortgage depends on many factors, including the loan program and mortgage lender you use, your down payment size, what interest rate you can get, your credit score, and more.
Generally speaking, though, most buyers can afford to take on a mortgage that’s between two and three times the size of their annual household income. Using this rule, you’d need to bring in between $100,000 and $150,000 to afford a $300,000 mortgage.
Your best bet is to use a home affordability calculator to determine what you can comfortably afford given your specific financial situation. You can then work with a loan officer to zero in on a reasonable home-shopping budget that works with your goals.
The monthly payment on a $300,000 mortgage depends on what interest rate you get and the term you choose. On a 30-year loan at a 7% rate, it would be $1,996 per month toward your principal and interest. Keep in mind, you also have to pay for expenses such as homeowners insurance and property taxes each month.
The income you’ll need for a $300,000 mortgage varies based on the interest rate you get and the term you choose. You also must meet your loan program’s debt-to-income ratio (DTI) requirements.
Credit score requirements vary by loan product. For conventional loans, you’ll usually need at least a 620 credit score to qualify. For FHA loans, it’s 580 with a 3.5% down payment and 500 with a 10% down payment. Lenders can set credit score minimums higher than these if they choose.
The best way to determine if you can afford a $300,000 house is to get preapproved for a mortgage. This will let you know what loan amount and interest rate you could qualify for and what monthly payment the loan would likely come with.
At a 7% interest rate, the monthly payment toward the principal and interest on a $300,000 loan would be $1,996. If you lower your interest rate by just a half-point, you can bring the monthly payment down to $1,896 per month and reduce your total interest costs by about $36,000.
This article was edited by Laura Grace Tarpley
