Understanding the Financial Obligations of Taking Out a Mortgage
Purchasing a home is often one of the largest investments people will make, so lenders want to guarantee you can afford to pay them back – that is why they do extensive due diligence on your finances before approving you for a mortgage.
One of the most essential steps when shopping for a mortgage is selecting one that meets your needs and budget. A fixed-rate loan offers more stability, as you won’t have to worry about your interest rate fluctuating.
Additionally, you must factor in property taxes and homeowners insurance when making your monthly mortgage payment. These costs will be added onto the final cost of ownership.
Calculating your monthly mortgage payment using an online calculator is a good idea, but nothing beats speaking with a real estate professional for an accurate estimate.
Private mortgage insurance (PMI), also known as private mortgage insurance, is a type of supplemental coverage that increases your monthly payment in the event you default on your loan. To find out what rate applies to you, review the mortgage statements received from your lender.
Closing costs, on the other hand, can be tricky to predict and usually vary based on your home purchase. To avoid an unpleasant surprise at closing time, be prepared with payments in full and negotiate with your lender to reduce overall closing fees as much as possible.
To avoid surprise expenses when house hunting, Brett Warren of Hyperion Bank in Philadelphia suggests creating a budget prior to beginning your search. Without one, you could find yourself in an untenable situation when trying to close on your new property.
Mortgage mills (the tiny but oh-so-cool ones) provide a wealth of tools to help determine how much you can borrow and your monthly mortgage payments. Zillow, for instance, has an affordability calculator which lets you input certain items and get an estimated housing expenditure.