Is Zillow Showing You The Wrong Monthly Payment

Certified Mortgage Advisor
NMLS 1701021
January 9, 2022

How important monthly payment

Your monthly payment is one of the most important things when you are shopping for a home because you need to know that you can actually afford to buy the home.

Things we need to consider

Not only do you have upfront costs, but we also have the monthly cost of your payment plus utilities and any other maintenance costs you're going to have with the home.

Zillow and how we tunnel vision

I keep seeing this issue that people have when it comes to Zillow is they're searching for a home and so they, maybe you land across this home and you're like, all this looks great! I think it's in our price range, and you look at this estimated monthly payment where it says $3203. That's what Zillow is suggesting as a monthly payment on this home. A first glance, most people are like, cool, it's going to cost me $3,200 to buy this home. I can absolutely do that.

Your scenario, not Zillow's

But the problem is Zillow isn't showing you a monthly payment that is likely going to be your scenario.

Hack to compute based on your scenario

So what we then have to do is we have to scroll down. And we're going to come to the monthly payment, monthly costs section here.

We don't want to be house poor

I cannot tell you the number of times that I've talked with a client and they've seen this number, and then they go and look at the home, they write an offer and then they go and talk to a lender. Find out the monthly cost is actually going to be quite a bit more than this. Then they already are committed to this home. And a lot of people, instead of saying, know, We, we took on too much. We're going to back out of this. They continue to move forward with the deal with the payment. They're uncomfortable with this mentality is what a lot of people would call being house poor. But we don't want that.

Zillow and how they compute monthly payments

So this is why this number isn't super accurate. So 3203. First of all, if we drop open this principal and interest. We can see immediately that Zillow is estimating. We're going to put 20% down. Most people are not putting 20% down the minimum for the first time. Home buyers are 3% on a conventional loan. However, a lot of people use five to 10%. So in this instance, let's just say 5% will already that jumped our monthly payment up to $3,900 instead of $3,200.

So this can price out. A lot of people very quickly, especially with how competitive everything is. People are looking near the higher end of their price ranges. So if 3,200 a month was already at the high end of your price range, you absolutely don't want your payment to come back to being 3,900.

Interest rates

Then also for interest rates, Zillow wants to basically show you their mortgage lender options which is fine, but they're showing you the lowest rate that is likely on their site, which may not be the most realistic number. And so I have a web page that you can go to - RATES.

What it will do is put together the national averages for different types of loans. So you can see those if you'd like to your situation may be different than this. But this may be a more realistic figure to run off of than just an advertised rate here. Let's say we bring this to 3.5.

Then for mortgage insurance, we do want to include the mortgage insurance. That's why the cost jumped up so much from the 20% down. If you're interested I do have a video about how PMI can be used as an investment. It's not just this terrible cost that happens all the time. We, unfortunately, can't change this number, but I do have a calculator that can help you here.

Property Taxes

I will give credit to Zillow. They usually do a really good job with property taxes. Here's the link: Property Tax Map. This going to show you the rates for property taxes in different states may change depending on which county you're in your state. But these are going to be good averages for you to run.

Homeowner's Insurance

Then homeowners insurance here is usually a fairly decent estimate. Again, I do have a map for average rates in the US this is going to depend a lot on where you're at. So if you're in Florida you are going to have a lot higher homeowners insurance than we would here in Ohio, because there are hurricanes there and no hurricanes yet here in Ohio. So we have that in there.

HOA fees

Then usually Zillow does a good job with HOA fees. And of course, they're not including utilities. They just show you the month, the mortgage payment. So overall not terrible. And what they're doing is not on purpose necessarily to try to they're not showing you something that's not unrealistic, but they're showing something that's not typical for most people. - FREE Calculator

I have a monthly payment calculator that might help you get a better idea. Here's the link: - Calculator. This is free. All we do in the beginning as we put in our loan details. So we're going to do 5%. We're going to do 3.5% is our interest rate for mortgage insurance. We can change these a little bit.

Let's have a walkthrough

So it conventional with good credit, conventional fair credit FHA, VA, and USDA. We're going to go with conventional with good credit. Uses 0.6, 5% of the loan amount as mortgage insurance, which is going to be a really good, typical average for you for homeowners insurance. I have found that 60 is a really good estimate here. If you're in maybe somewhere like Florida, you might bump this up to 80.

So what that is, that's 0.6% of the purchase price as homeowners insurance, and then how long the loan term is. And so what you can do is put in 5725, We'll come up here, 570 to 500 we'll put in the square footage. So that is 3750.

Then monthly HOA, there was none in there. Then we're going to look at our annual. Taxes here. So taxes in Ohio are high 13,200 utility costs per square foot. This is what the VA uses as their rough estimate for utilities. This might be a really good one for you.

You can save up for home maintenance

If it's an older home, you might want to bump this up to somewhere like 14 to 16 cents per square foot if it's an energy-efficient home. You might want to drop it down to 10 cents a square foot and then maintenance savings. This would be how much are we going to put into savings every month for the maintenance of the home? And so a lot of homeowners don't or new homeowners don't think that they need something like this.

But this is really good to have monthly savings. So when something needs to be fixed, even if it's hardware updates, if it's paint, if it is a furnace that goes out, you want to have that savings set aside.

So how much of the purchase price per year are you going to be saving? A lot of people would suggest 1%. That may be a little more. 0.5% for me, it feels comfortable. So here it would break down your mortgage payment with much more realistic numbers. So we can see we're pushing 4,100 compared to the initial 3,200 that was advertised on Zillow. But this is a much more realistic estimate that we can look at. Instead of looking at the low rate, that was super interesting.

Don't forget to include utilities and potential other cost

Then moving forward with it and then finding out the monthly payments much higher. Then what this also does is take then what you put in for utilities and monthly. It gives you an estimate potentially of what you might pay. So if you're looking at this and you're saying, oh, this actually seems high, we can actually drop this down if you'd like to, depending on your area and what you believe might be more accurate.

So then that shows you what the mortgage payment would be plus potential other costs. Then that would show you your total monthly payment here.

You can compare prices

You can do this when shopping with multiple homes. So if I was looking at this home, I would put in the street name, so for this, it's 236 Rubicon, and then you can also put it in other homes as well to help you get a better idea of what this monthly payment is going to be.

Don't just rely to Zillow, learn to compute

Please, do not be the person that just sees oh, $3,200 a month. That sounds great. That is not tailored to your scenario and your situation and your payment will be different most likely than what is shown on Zillow.

Save yourself from emotional attachment and disappointment

II don't want you to get emotionally invested into a home and get excited and write a conscious. If that's not going to be what the payment actually is. One of the best ways to get the monthly payment is using a calculator like this: - Calculator, and also talking to a loan officer who can give you a full quote and a breakdown.

Talk with a loan officer
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