What's in a Mortgage Payment? | Monday Minute

As we head into the summer, this is typically the busiest time in real estate.  Many people are surfing online looking at potential homes to purchase. If you are serious about wanting to buy, one of the best things you can do to prepare is start the process with a licensed mortgage lender to find out how much you can afford and what that payment looks like.Most buyers like to wait until they find the house they want to buy before contacting a mortgage lender, but in this market, it may be too late with homes flying off the market within days of being listed. The last thing you want to do is fall in love with a home that you find out you can not afford. Oftentimes, if buyers are depending on numbers they get from online mortgage calculators, which can often be somewhat misleading on the monthly amounts as it doesn’t include all of the actual monthly costs that go into a home loan.So what are those costs?  The main costs are summed up in the acronym, PITI.  Which stands for Principal, Interest, Taxes, and Insurance.Principal is the portion of the mortgage payment that solely goes towards paying down the actual loan amount itself.  Loans are generally scheduled in such a way that the principal loan amount starts out at a lower percentage of the payment amount and increases over the years of the loan.Interest is the cost paid for borrowing the money from the lender.  Opposite of the principal amount, the interest portion starts at a higher percentage of the total loan payment and gradually decreases over the life of the loan.Taxes refers to the real estate property taxes that are assessed by the local government.  These costs are divided by the total mortgage payments in a year that are collected into an escrow account and are paid at the times during the year that real estate taxes are due.Insurance is the homeowners insurance that you have on the home.  Like the taxes, this too is divided into equal payments throughout the year and held in that escrow account until the bill comes due.In addition to PITI, there are some other factors to be considered.  Depending on the neighborhood that you are considering, you may have additional costs of  condo or HOA fees. Depending on the particular loan program that you are using and how much money you are putting as a down payment on the purchase there may be an additional cost called PMI or private mortgage insurance.  These factors can change your total monthly payments and make a home more affordable or not.  If you are thinking about buying a home, even if you are pretty early in your searches.  It’s never too early to speak with a qualified lender to find out what you can qualify for.  If you have any questions about the process or would like a referral to a great local lender, give us a call.  We look forward to helping you!