So get ready to buy a house. Congratulations! Before you decide on a chic birdbath and a perfect welcome mat, there is one thing to consider: is your budget ready for monthly mortgage payments? If you are not buying cash, this is an important question. Knowing what is included in a monthly mortgage payment and how many houses you can really afford are important steps to finding a home that meets your long-term goals.
What is included in a monthly mortgage payment?
Make no mistake about it. What we call a monthly mortgage payment isn’t just about paying off your mortgage. Instead, imagine a monthly mortgage payment like the four tabs: Basic, interest, property tax and home insurance (called PITI, damage because, as you know, it increases your payment).
The first part of the mortgage payment is the main part. The main one is the original part of the money that you give your lender to buy a house. For example, suppose you buy a house for $ 300,000 with a deposit of 30% of your own money ($ 60,000) and borrow the rest. It sounds simple enough. But wait, if you think the director is the only thing to think about, you’ll forget the director’s best friend.
It would be nice to think that lenders allow you to borrow your money just because you like it. It may be true, but they still have a business and want to put food on the table. Lenders are interested in allowing you to borrow your money because they make money with what they lend you. Interest is a percentage of the principal: the amount of the loan that you still have to pay.
Mortgage rates are constantly changing, so it’s wise to choose a fixed-rate mortgage to find out how much you’ll be paying each month. A variable rate, like the one found on ridiculous variable-rate mortgages (ARMs), makes the amount of interest you pay from year to year as variable as the wind. Stay away from MRAs (or other loans that look like body parts).
When you buy a house, your local government will “salute” the neighborhood by charging you property taxes. Even if you bought your home in cash, you will not leave much to be desired as property taxes pay firefighters, police, schools, highways and other utilities.
When do you pay your property taxes?
While your local government collects property taxes each year, you can pay them as part of your monthly mortgage payment. Each month, in addition to your monthly mortgage payment, you pay part of your property taxes and your lender usually makes these payments in a separate account called a trust. At the end of the year, a custodian will deposit all the money in your account and pay your property taxes. Out of the eyes, out of the head. What a relief!
Finally. We are in the last phase of PITI: insurance. Everyone who buys a house needs home insurance, there’s no question about it. It is not necessarily a bad thing. Instead of risking having to pay to repair or rebuild your home (your biggest investment!) After a fire or a tornado, home insurance takes the risk away and hands it over to your insurance company. What a relief!
When do you pay for your household insurance?
Do you remember the beautiful and elegant escrow account you had with your property taxes? You know what? It’s back. As with property taxes, you pay part of your landlord’s insurance premium in addition to the principal and interest payments. Your lender will collect these payments on an account and, at the end of the year, your insurance company will withdraw all the money when your insurance payment becomes due.