How much does a $250,000 mortgage cost?

Unless you have hundreds of thousands of dollars in the bank, you’ll need a mortgage loan to finance the purchase of a home. If you’re thinking of taking out a loan, you’re not alone. According to the 2023 National Association of REALTORS® survey, 80% of buyers took out a loan to purchase a home. If you are leaning in that direction and determining your budget, remember: The amount you qualify to borrow dictates how much you can spend on the home and how big a bite the payments will take from your budget. 

Several factors impact the cost of a loan. The interest rate is a significant one, but the loan type and term, and the expenses included in your payments, play major roles as well.

Monthly payments for a $250,000 mortgage

Mortgage payments might include several different charges. They include:

• Principal: The principal payment is the amount that goes toward paying off your original loan amount — $250,000, in this case. 
• Interest: The interest payment is the portion of your payment that goes toward the mortgage interest that has accrued on the principal. In the early years of a loan, most of each payment goes toward interest. 
• Escrow items: Your lender might submit property tax and homeowners insurance on your behalf. If so, it’ll collect the amounts from you in installments added to your monthly mortgage payment, and then hold the funds in escrow until the bills are due. This type of loan is called a PITI loan, for principal, interest, taxes, and insurance. If your home is in a planned community governed by a homeowners association, the lender might let you add the HOA fees to your escrowed items.
• Mortgage insurance: When a homebuyer borrows more than 80% of a home’s purchase price, the lender typically takes out mortgage insurance to protect itself in case the borrower defaults. If you’re required to have mortgage insurance, the lender will add the fee to your mortgage payment.

Home loan payments include both principal and interest. You might or might not have escrow items and/or mortgage insurance. 

To give you an idea of how much your basic principal and interest payment might be, here’s a look at the payment amounts for a range of mortgage rates on 15- and 30-year fixed-rate mortgage loans.

Where to get a $250,000 mortgage

Several different types of financial institutions offer mortgage loans: banks and credit unions as well as correspondent lenders, which are non-bank mortgage loan providers. You can get your loan directly from the lender, which is the case with correspondent lenders and many banks and credit unions. You can also comparison shop through a mortgage broker that lets you compare rates and other fees from several different lenders at the same time.

What to consider before applying for a $250,000 mortgage

The most important thing to consider before applying for a $250,000 loan is cost. Remember to pay close attention to both the interest rate and the annual percentage rate (APR). 

The interest rate is the lender’s fee for loaning you money. The APR includes interest plus points (prepaid interest), broker fees, and origination and other fees to provide a more accurate look at the annual loan costs. 

Whereas you pay interest over the life of the loan, most of the other fees that comprise the APR are one-time expenses, but they can add up to thousands of dollars.

Amortization table on a $250,000 mortgage

If you take out a fixed-rate mortgage loan, the lender will divide your payment between principal and interest. Your payments will stay the same over the entire loan term, but the amount that goes toward principal and the amount that goes toward interest will change each month. In the end, the entire principal and all of the accrued interest will be paid in full.

That kind of payment structure is called amortization. 

Here’s what an amortization schedule looks like for a 30-year, $250,000 loan with a 6% interest rate:

Now look at a 15-year amortization schedule for the same size loan — $250,000, at 6% interest:

In addition to getting your house paid off in 15 years instead of 30, a 15-year mortgage loan saves you nearly $160,000 in interest.

How to get a $250,000 mortgage

A $250,000 mortgage loan is a major, long-term commitment with a lot of steps involved beyond deciding to borrow and closing your loan. A strategic approach can help the process go more smoothly, whether you’re a first-time buyer or trading for a different home.

1. Check your credit: Credit report errors can take time to correct, so it’s a good idea to order copies of your credit reports as soon you’re ready to start looking at homes. You can get one free combined report per year from AnnualCreditReport.com. The three credit bureaus, Equifax, Experian, and TransUnion, offer weekly reports for free from their websites.

2. Make sure a $250,000 loan is realistic: Conventional loan lenders prefer that your total house payment (principal, interest, property taxes, homeowners insurance) not exceed 36% of your monthly income, which translates to a 36% debt-to-income ratio. Your total debt payments, including your house payment, should be 50% or less of your monthly income, although 45% is better. To calculate how much income you need to qualify for a $250,000 loan, divide your anticipated mortgage payment by 0.36, and divide your total debt payments by 0.45.

3. Set your budget: Your budget equals your $250,000 loan plus your down payment amount and closing costs. The minimum down payment for a conventional loan is 3%, but you’ll usually have to pay mortgage insurance if you put down less than 20%. Closing costs average 2% to 5% of the purchase price, according to Freddie Mac. 

4. Gather your documents: You’ll have to apply for your mortgage almost as soon as the seller accepts your offer on a home, so have your documents ready. You’ll need your employer’s contact information, two years’ worth of W-2s and tax returns (tax returns with Schedule Cs, if you’re self-employed), at least a month’s worth of pay stubs, and statements for any other income you receive, such as a pension, investment income, or Social Security.

5. Comparison shop for loans: Request rate quotes from at least a few different lenders, and be sure to check the details. Two lenders might offer the same rate, for example, but if one charges discount points, its APR would be higher, making it more expensive.

6. Get a pre-approval: Once you’re ready to actively search for a home and make an offer, request a pre-approval from one or two of the lenders you like best. You’ll likely need it before you can make appointments to tour homes, and it will give you a more definitive picture of how much you can spend — not to mention a head start on completing your mortgage application.

7. Apply for your loan: As soon as your offer has been accepted, apply for your loan with the lender that issued the pre-approval that best meets your needs.