DON’T BE MISLEAD!
When searching for your dream home you will often see homes with mortgage payments advertised. BEWARE… those prices may only include principal and interest! There are a handful of expenses that you may need to calculate into your monthly payments, such as;
- Home Owners Insurance
- Property Taxes
- Mortgage Insurance
- HOA Dues
- Private Assessments
These are the most common. Not all will apply, but some will. Read below for some examples of each.
NEW CONSTRUCTION BUYERS
Pay attention to the taxes. More than likely the year that you purchase will have very low taxes because it was assessed as a dirt lot. Make sure you have a conversation with your lender about what the current assessment is and what next years taxes are likely to be.
For example: You could purchase a home this year for $300,000 and your monthly payment is $1,500. That was calculated with a tax assessment of $40,000 for the lot only. If your taxes are 2.7% that would mean your taxes for the year would be $1,080 or $90 per month of that $1,500.
However, next year the county will assess the home at the full value of the home. If they assess the home at $300,000 and your rate is 2.7% then your annual tax bill would be $8,100 with no exemptions. That would equal a $675 monthly tax payment. Which means your monthly mortgage would increase by $585 per month!
We are not in the business of surprises. Luke will walk you through this process and make sure you know what to expect. There have been cases where this was a surprise to a buyer and they ended up having to sell their dream home because they could not afford it with the real tax payment (never to any of my buyers)!
Also, you are likely to receive a very good home owners insurance premium because the home is brand new. You get this premium because of the warranties, appliances, mechanicals, etc. are also brand new. Just be prepared for that premium to increase, but it most likely won’t increase as dramatically as the tax example!
- Principal - this is simply the balance of the remaining loan. Like most loans, at the beginning, only a small percentage of your payment goes towards the principal.
- Interest - this is the cost of borrowing money. At the beginning of the loan this is the biggest chunk of the mortgage payment.
- Home Owners Insurance - this is the insurance premium that covers you should you experience a loss of some sort. Please understand your policy because it may not cover what you think it does… especially when it comes to water claims.
- Property Taxes - Each year the county you live in will assess your home and place a value on it. That is the value you are taxed on. Most of this payment goes to your local school district. You can reduce your tax burden if you file for and qualify for any exemptions, such as; Over 65, Homestead, Disabled, etc. A homestead may offer you some additional protections and cap your following years assessment.
- Mortgage Insurance - This is typically required when making a down payment of less than 20%. This insurance covered the lender in the event a buyer defaults on the loan. These payments can vary depending on score or other factors depending on your loan type. Often times these are between $125 - $225 per month for homes $350,000 or less. Again, Luke will walk you through these figures to help determine what is best for you and your family. There is also a single premium option where you can pay this insurance up front, which would lower your monthly payment by whatever the cost would have been. This is usually a good strategy for someone that has cash on hand and just wants a lower payment. This single premium payment will lower your monthly payment more than applying that payment to the principal.
- HOA Dues - These are paid directly to the management company for your HOA for you to enjoy the benefits and/or amenities it provides. If your annual dues are $600 then your monthly mortgage payment will be an extra $50 per month.
- Private Assessments - this could be something as simple as you purchased a home in a private community with private roads. Every so often they may need to resurface it and they divide that cost amount the home owners. This could also be an assessment for condo owners where the association is going to paint the exteriors. They would simply divide the cost between the members.