Now that you’ve learned about mortgages you know you need to show up to the closing with funds for your down payment and possibly some or all of the closing costs. But wait, what about your monthly payment?
Here is what a typical monthly mortgage payment includes:
Repayment of the loan balance: This portion of your monthly payment includes both the principle (the $$ you borrowed) and interest (the cost of borrowing the money). If you’re putting down less than 20%, your monthly payment will also include PMI (conventional mortgages) or MIP (FHA insured loans). The amount of mortgage insurance you will be charged will be determined by your credit score and the amount of your down payment.
Property Taxes & Insurance: If your down payment is less than 20% (and even if it isn’t), some lenders require that you open an escrow account on the day of closing. A percentage of your annual property tax and insurance bills will be added to your monthly mortgage payment and transferred into the escrow account on a monthly basis so the funds are available to pay those bills when they are due each year. It is important to keep your mortgage holder informed if you make changes to your insurance carrier or policy. The actual amount you will pay annually for both property insurance and taxes will be determined by the location, size of the home, condo or HOA, proximity to water, etc. Both property taxes and homeowners insurance rates can vary annually.
HOA and/or Condo Dues: When you purchase a home within a Homeowners Association or condo within a Condo Association, some of the responsibility for maintenance shifts from you to the association. Examples include common areas such as trails, pools, tennis courts, gyms, landscaping and more. Sometimes the association covers the exterior of the building, maybe the roof, windows, siding, etc. Dues and fees for HOA/CA vary from community to community. Taking a close look at the associations CCR’s and Financials is a wise move prior to committing to properties within associations. Fees can vary widely depending on the age of buildings, responsibilities of the association vs. homeowner, location and more. Note: most fees are adjusted annually based on the association’s budget.
At the end of the day, I recommend that you try to keep these housing expenses to within 1/3 of your monthly budget. But I’m not an accountant or financial planner…just want you to be comfortable and able to enjoy your new home!