Taking out a mortgage involves more than just borrowing a specific amount of money. There are several additional costs that borrowers often overlook but need to consider before venturing into homeownership.
Down Payment: A down payment is a substantial upfront payment made to secure the loan. It is usually a percentage of the property’s purchase price. A larger down payment can help reduce monthly mortgage payments and potentially eliminate the need for private mortgage insurance (PMI).
Closing Costs: Closing costs encompass various fees and expenses linked to finalizing your mortgage loan. These costs typically range from 2% to 5% of the loan amount. Examples of closing costs include loan origination fees, appraisal fees, credit report fees, title search and insurance, as well as attorney fees.
Private Mortgage Insurance (PMI): If your down payment is less than 20% of the home’s purchase price, lenders may require you to pay for PMI. PMI protects the lender in case of default. The cost of PMI varies based on factors such as loan amount, credit score, and down payment size.
Homeowners Insurance: Lenders typically mandate homeowners insurance to safeguard their investment. The cost of homeowners insurance depends on factors such as property value, location, and coverage amounts.
Property Taxes: Property taxes are recurring expenses that homeowners must account for. The amount you pay depends on the local tax rate and the assessed value of your property. These taxes are usually paid annually or through an escrow account set up by your lender.
Before committing to a mortgage, it is vital to understand and budget for the additional costs associated with homeownership. Considering expenses such as down payments, closing costs, PMI, homeowners insurance, property taxes, and home maintenance will help you make informed decisions and be financially prepared.
Reach out to us today so we can assist you throughout the process, and find the right mortgage to fit your needs.
