When you are ready to purchase your first home in Colorado and you plan to finance your home with a mortgage loan, a monthly mortgage payment is likely in your future.
For those who rented a home or apartment previously, the concept of making a monthly payment is a familiar one. However, as a homeowner making a monthly mortgage payment, your money won’t be going into your landlord’s pocket. Instead, your one monthly payment will help you cover a variety of things and help you earn equity in your home. This is a huge benefit of buying instead of renting!
What exactly is covered in your monthly mortgage payment?
Wondering what exactly you are covering in the payments you make each month? Here is a breakdown of what’s included in the one easy payment you make each month.
The principal is the amount of money in your monthly payment that goes towards the actual cost of the home you purchased. In other words, it’s the amount you pay back to the lender each month.
Each time you contribute to the principal, the equity in your home increases and the principal amount you owe decreases.
If you are borrowing money from a lending institution to purchase your home, you will have to pay interest on the loan. Interest is a percentage of the loan amount paid to the lender over time in exchange for the use of the money they lent.
When you are first starting your mortgage payments, most of your mortgage payment will go towards paying down the interest on the loan. Over time, this will shift and you will begin paying more towards the principal portion of your mortgage, though your monthly payment amount will not change.
As a property owner, you’ll be responsible for paying property and school taxes. If you’d been renting previously, this will likely be new for you.
Luckily, for many first time homebuyers, Escrow makes paying your annual taxes easy! With Escrow, a portion of your monthly mortgage payment is set aside to be used for covering the taxes on your new home. By incorporating tax payments right into your monthly mortgage payment, you won’t have to worry about saving to cover your school and property taxes.
If you’re like many first time homebuyers, who put less than 20% down on your home when you purchased it, your mortgage program will require you to pay mortgage insurance. Mortgage insurance, or PMI, protects lenders in case you default on your loan and are unable to pay it back. It is typically required for loans with low down payments.
The good news is that your mortgage insurance payment is not something extra you’ll have to worry about. It is completely covered as part of your monthly mortgage payment.
Your home is likely one of the most significant purchases you’ll make in your life. As a result, it’s incredibly important to protect it with a homeowners insurance policy.
As a new homeowner, you’ll want to research your options to decide the provider and policy that works best for you. If you are participating in Escrow, once you’ve selected a provider and policy you won’t have to worry about making a monthly payment. A portion of your monthly mortgage payment will automatically go towards covering your homeowner’s insurance payment.
Smart Start Homeowners are experts with first time home buyers and down paylment assistance programs. We are with you every step of the way. Find out more now.
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