When you are buying a home, it is essential that you know everything about your loan. As obvious as this sounds, there are too many buyers who don’t know exactly what they are getting into. They are just so excited to be involved in the buying process that they blindly move forward. Even if they know the numbers and figures they fail to ask questions and ultimately are surprised at some point down the road. This is your loan and you need to know all the terms and equations involved and only when you are comfortable with them should you move forward. Here are four loan items that can have a definite impact on your monthly payment.
PMI (Private Mortgage Insurance). PMI is one of those loan terms that you probably have heard of but aren’t exactly sure what it means. Simply put if you put down less than 20% of the purchase price the lender may require a PMI payment. There are a growing number of programs where you can avoid PMI in lieu of a higher interest rate but not for every loan. PMI is a separate payment to the lender that could range from $75 to $300 per month based on the size of the loan. On an FHA loan PMI is required regardless of the down payment or how much equity you have down the road. On most loans you have the option of eliminating the PMI once you have reached 78% equity in the property. Prior to taking out any loan you need to know what the PMI payment is and how you can get rid of it in the future.
Flood Insurance. Since hurricane Katrina there have been sweeping changes to flood insurance policy and guidelines. In the past, flood insurance was reserved primarily for properties on the oceanfront or near water. Today, FEMA dictates which properties are required to obtain flood insurance. If the property is in a flood zone you cannot buy a house without flood insurance. Some flood zones can be several blocks from the water and have very little chance of having any impact. Flood insurance is in addition to your regular homeowner’s insurance and is almost always for the life of the loan. Depending on the flood zone your flood insurance could be as much, or more, than your annual homeowner’s insurance.
HOA Payments. There are several distinct advantages in buying a condominium. In addition to the amenities there are advantages to your monthly payment. Almost every condo is part of a complex, regardless of the number of units. Depending on amenities, the complex will charge a monthly homeowners association fee. What many buyers don’t know is that the association fee includes your insurance as well. If you pay to an association you will not have a separate payment for the insurance. This helps justify the association fee, regardless of how high it may be.
Rate Adjustments. 90% of all loan products in 2018 are fixed rates. That being said, there are still a handful of adjustable rate options available. These can make sense if you know you are moving in a certain amount of years or you want the lowest possible payment for a fixed number of years. If used the right way an adjustable rate loan can make sense for the right buyer. However, you need to know everything about the term, adjustment potential and worst-case scenario. Even though there are rate ceilings after the fixed period ends, you can expect the payment to be higher. It is essential that you know exactly what you are getting into.
Regardless of what kind of house you buy or how long you plan on living there, you need to know everything about your payment. You don’t want an unexpected change in payment 90 days into your ownership.