Securing financing is one of the first steps on your way to owning your dream home. While it seems like the beginning of a long process, we will be with you every step of the way. We’re dedicated to helping you sort through the basics of home financing so you know what to expect during the buying process.
What Is A Mortgage?
Technically, a mortgage is a pledge of your property as security for payment of your home loan. Typically paid in monthly increments, your monthly loan payment will be made up of four parts, commonly referred to as “PITI”.
- Principal – the amount left on your loan apart from interest
- Interest – interest paid in monthly increments for the life of your loan
- Taxes – your monthly property tax payment. This is approximately 1/12 of the total property tax for the year
- Insurance – referred to as hazard insurance or homeowner’s insurance, this coverage protects your home and certain possessions, and can help protect you from liability claims or lawsuits for accidents on your property
Additional Expenses to Consider
The components of PITI will typically make up your main home expenses each month. However, there are some surprise costs you may want to consider when deciding what level of financial investment you’re able to commit to.
When estimating your monthly budget, you might also need to factor in these monthly costs:
PRIVATE MORTGAGE INSURANCE
Private Mortgage Insurance (PMI) is a form of insurance typically required for homebuyers who take out a conventional mortgage loan for more than 80% of the total value of the home. This added insurance protects the lender against loss if the borrower defaults on the loan. As a first-time homebuyer, PMI may allow you to buy a home with a down payment as low as 3%.
HOMEOWNER’S ASSOCIATION (HOA) FEES
A HOA is an organization that enforces covenants and rules for the community and maintains shared property, such as open spaces, parks, and community pools. If you buy a home in a community with a HOA, you’ll be responsible for any HOA fees.
Investigate the cost of membership before selecting a property to make sure the added expense is within your budget.
If the home you want to buy is located in a special district, sometimes called a Community Facilities District, you’ll pay additional taxes to fund improvements such as schools, parks, and roads.
One of the main differences between renting and buying is that you become responsible for any maintenance costs on your home. Set aside an amount each month in a home maintenance account so you’ll have funds on hand when a need arises.
How Much Can You Afford?
It’s easy to base your home-buying decision on how much you can pay on your mortgage. Additional costs can depend on where your home is located, how old it is, and what kind of insurance you buy. Be sure to consider these when putting together your homeownership budget. In addition to personalized service from a Carter Bank & Trust Mortgage Specialist, we can help you weigh out those costs with our Maximum Mortgage Calculator and Rent vs. Buy Calculator.
With tools like this, you can be even more confident when you contact a mortgage specialist!