Buying a home for the first time is exciting but you may feel a bit overwhelmed with the process and have several questions about this important transition in your life.
In this article we will address your mortgage payment and what you should expect to pay each month. The actual dollar amount will vary from buyer to buyer, but let’s break down what types of fees are included in your monthly payment.
Understanding Your Mortgage Payment
Principal and Interest
In addition to paying on the principal of the loan, you also have to make interest payments to the lender. The amount of interest will vary based on a number of factors including market rates and even your credit score. A lower credit score is typically perceived as a higher risk, resulting in higher interest rates.
One way you can get a lower rate than what the market offers, is to pay to permanently or temporarily to buy down that rate with discount points.
Discount points are fees paid directly to the lender at closing in exchange for a reduced interest rate. Discount points can be paid by a buyer or a seller. If you are able to negotiate a seller credit into your purchase contract, that credit may be applied to buying down your rate or money towards your closing costs.
Property Taxes and Homeowners Insurance
Most loan programs will require the lender to include a portion of your property taxes and homeowner’s insurance in your monthly payment. Then the lender pays taxes and insurance bills when they are due.
It is important to be aware that property taxes and homeowners insurance can increase at any given time, resulting in a higher mortgage payment, even if you have a fixed rate.
Mortgage insurance, often referred to as private mortgage insurance or PMI, is a lender’s protection in the event that you default on your primary mortgage and the home goes into foreclosure. The cost of PMI typically costs between 0.5 percent and 1 percent of the loan, but depends on the borrower’s financial background, such as credit score and income.
Unlike homeowners insurance, mortgage insurance premiums will not increase at any time. In fact, once you have paid down your mortgage to a certain level, the premium will drop off and your monthly mortgage payment will go down!
Another way you can avoid paying PMI altogether is to put down 20% for a down payment.
About Rochester Mortgage Lender, Julie Krumholz
Julie Krumholz is has been helping homebuyers throughout Michigan for over 30 years. On a personal level, you will find her to be friendly, straightforward, honest and extremely dedicated to helping her clients.
If you have any additional questions about home loans or how to calculate your mortgage payment, contact Julie today at: 586-382-5482.