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There’s more to your monthly mortgage payment than the amount you borrowed to purchase your home. When you’re calculating how much house you can afford, be sure to consider all of the components that typically make up your monthly home loan payment.
Start with the principal. The principal is the amount of money you borrowed to purchase your home and have to pay back.
Add interest. The interest is what the lender charges for lending you the money. Rates are low right now, so make sure you shop around to get the best rate you can. Further, take a look at a 15 year mortgage instead of a 30 if you can. Many times the monthly payment won’t be as high as you think, because the interest rate is lower than a 30 year mortgage. You might be surprised!
Don’t forget the taxes. Property taxes can be a significant amount of your monthly payment, depending on where you’re buying property. These taxes fund schools, city and county services and other local entities, and are based on the tax rate for each of those taxing authorities applied to the appraised value of your property. In Ohio property tax is paid in arrears, meaning your 2020 taxes are paid in 2021. The first half of 2020 taxes are due on January 20, 2021 and the second half of your taxes are due June 20, 2021 and so forth. Many borrowers escrow their tax payments, meaning it is rolled into your mortgage payment and the bill goes to the lender. Your lender will then pay your property taxes twice a year for you ensuring they are always on time. Some people are not disciplined enough to save throughout the year and it is just easier to have their lender take care of it. Franklin County properties are reassessed every 3 years or at the time of a sale. Make sure you understand how your taxes will increase based on the purchase price. More often than not your taxes will increase after the sale is recorded.
Lastly, the insurance. Homeowners insurance payments are typically bundled into your mortgage payment. Most lenders require it. If you made a downpayment of less than 20%, private mortgage insurance (PMI) will be a part of your mortgage payment as well. Some lenders have special programs where you don’t have to pay PMI for down payments less than 20%.
Make sure you are getting a few insurance and lender quotes. You want to not only protect your investment, but ensure that you are getting the best product for your individual situation.
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