Never Trust a Zestimate

At one point or another, we’ve all spent a little too much time browsing homes online. Touring can be one of the most fun parts of buying, it’s hard to resist looking! If you look too closely however, it’s easy to feel discouraged by the pesky monthly estimate next to the home price, or as Zillow calls it, the Zestimate.

These estimates are nothing more than a general algorithm for a global audience. They are the same number for anyone who looks at that home online, regardless of how much they can afford to put down – even if they can afford to pay in all cash.

What goes into their estimate of monthly costs anyway?

If you look at the monthly estimate on Zillow or Redfin, you’ll notice they don’t display what downpayment was used, what the interest rate is, if they have private mortgage insurance, or if it accounts for the property taxes. There is no mention of what kind of loan this based on, nor does it account for tax credits available to homeowners that reduce their monthly costs.

There are 4 elements that make up a monthly real estate payment, and they vary from individual to individual even if they’re applying for the same home! 

The first one of these is the downpayment.

What you can afford to put down, and how much you’ll need to have down, is somewhat up to you and what you qualify for. The average first time home buyer only puts 5% down, but there are programs that only require 3%, and programs that allow you to purchase with zero down. What you personally use as a downpayment will depend on what you can afford, and what your lender will qualify you for. Different lenders have different programs, and I always recommend getting pre approved by a few to compare what loan will be best for you.

The next element is a hot topic in todays market, the interest rate.

You may not know, but the current market rate is not the rate every homebuyer gets. The loan program you use can reduce your interest rate below the market rate, taking hundreds of dollars off that monthly payment. Many sellers in this market are offering credits at closing to reduce the interest rate even further! In addition, one of the benefits of homeownership are tax credits. You should discuss it with a CPA before buying, but you may be one of many homeowners who is able to write off their interest payments! 

A lesser discussed addition to your payment is PMI, or private mortgage insurance.

This is only present when your downpayment is less than 20%, and the amount varies based on the loan program you use. Some programs with lower a downpayment will reduce your PMI by paying a little more in closing costs on the settlement day, and some will reduce your PMI month to month until you have 20% equity in your home or your refinance, whichever comes sooner.

The final addition to this is the property taxes.

While it is perhaps the easiest and most consistent element of the payment, it is the same for the property regardless of who is buying or how they are financing, it is the most common tax credit homeowners can use to reduce their monthly payment. You must talk to a CPA before writing anything off, but many homeowners in Washington state are able to write off their property taxes from their monthly mortgage payments. 

And just like that, those Zestimates and Redfin estimates look like nothing, but a bunch of numbers. There is no telling what you can afford month to month, until you talk to a real estate broker and meet a couple lenders. I am here for you every step of the way. I am more than happy to discuss what you may qualify for, and help you determine the homes you can actually afford. Reach out to me any time, and we will get you started.