First Time Home Buyers
Buying a home is part of the American dream. It is a significant long-term investment that often represents the foundation of our lives, providing financial and emotional security. It is also the largest single transaction most people ever make. That is why it is so important to choose a home and a mortgage that are well suited to your needs.
What Is a Mortgage?
A mortgage is a loan secured by real estate. In other words, in return for the funds necessary to purchase a home, a lender gets your promise to pay back the funds over a certain period at a certain cost. Backing your promise to repay is the property. Should you default, or stop paying the loan, the lender would take over ownership of that property. Typically, the repayment of a mortgage occurs through monthly payments.
What Does My Mortgage Payment Include?
Usually, your monthly mortgage payment is made up of four parts: principal, interest, taxes and insurance (PITI), but it can also include maintenance expenses, such as condominium homeowners' association dues. The principal is the amount in your monthly payment that reduces the original amount borrowed. Over the life of a standard mortgage loan, the entire original amount borrowed is generally scheduled to be fully paid off, or amortized. The interest rate is the fee charged to borrow the outstanding balance for the past month. In addition, a monthly amount may be collected and held in a separate escrow account to cover property taxes, homeowner's insurance and mortgage insurance. Your lender uses the money in the escrow account to pay your tax and insurance bills, as they come due.
Mortgage Payment Breakdown
Principal + Interest + Taxes + Insurance = PITI