If you rent an apartment but want to buy a house, you can expect your bills to change when you purchase a home. One key difference will be that you must pay a mortgage payment instead of a rental payment. As you prepare for your first home loan, you might want to get ready for these changes by learning a few things. Here are four things you need to know about when getting your first-time home buyer loan.
1. Your Payment Includes Other Expenses
Your lender will require monthly mortgage payments, but the payments are for other expenses, too. The two main expenses your lender might add to your payments are homeowner's insurance premiums and property tax bills. Lenders typically divide these annual expenses by 12 to determine the monthly amount you need for each. They will add these amounts to your monthly mortgage payment and place the funds in an escrow account. When your homeowner's premiums and property taxes are due, your lender will pay these bills for you out of your escrow account.
2. You Might Also Pay PMI
If your loan type requires paying private mortgage insurance (PMI), your lender will also add this monthly amount to your payments. Paying PMI is usually temporary, but you can talk to your lender to learn more about how this works.
3. Your Payments Are for Principal and Interest
The third thing to understand is that your payment amount for your mortgage is for two different things. First, it covers the interest expenses that your lender charges for issuing you the loan. Secondly, it covers your principal balance, which is the amount you owe on the loan. When you initially begin paying your loan, more money will go toward interest than principal.
4. You Can Pay Extra Each Month
Finally, you might be able to pay extra money on your loan each month. By doing this, you can reduce the interest charges you pay for the loan. You can also cut the number of payments you must make. If you want to pay extra each month, talk to your lender to make sure that your loan type allows you to do this.
When you learn these things and other things about home loans, you might be more prepared when you start paying yours. If you would like to learn about applying for a home loan, talk to a mortgage ender today.