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Beyond Principal and Interest: What Else Do I Need to Pay for My Mortgage?

The iServe Blog


“How much can I afford to spend?”

It’s a common question and one our loan originators hear all the time. One of the best ways to determine how much you can spend is to start with one of our mortgage calculators, but there are other expenses to consider as well. When you take out a 15- or 30-year mortgage, you’ll have other expenses each month beyond your principal and interest; from your utilities to your taxes, insurance and even PMI, here’s what to expect when you buy a new home.

Private Mortgage Insurance (PMI)

First time homebuyers are often shocked by this one; Private Mortgage Insurance is added to many loans and is designed to protect the lender. PMI is charged in conventional mortgages if the amount the borrower puts down is less than 20 percent. PMI rates vary and are based on the cost of your home, interest rate and even your credit score. If you are putting down less than 20 percent, be prepared to see PMI on your monthly bill.

Insurance

You’ll need homeowner’s insurance to protect your new residence and to secure your loan. An amount sufficient to pay your periodic premiums can be included in your monthly mortgage payment as an escrow, so you don’t have to pay a lump sum from time to time. The amount will depend on the value of your new home and other factors. While you are required to have hazard insurance, you may also need to get wind or flood coverage, depending on where your home is located.

Taxes

Your property taxes will depend on the state and county you live in; taxes vary widely but can add a significant expense to your monthly budget. A home in a tax-heavy state such as New Jersey could cost you twice as much as the same home in a low-tax state like South Carolina, even if the selling cost of the home was the same.

Utilities

Heating and cooling your home adds up; if you have purchased an older home or one that does not have an energy-efficient system, your monthly utility bills could be higher than you expect. Asking the current owner for the last 12 months of utility bills and looking at your home inspection findings can give you some idea of the cost.

HOA Fees

If you buy a home in a managed or private community, you could also have monthly, quarterly or annual homeowner’s association (HOA) fees. The fees charged will depend on the individual community, but they should be factored into your decision as you shop for a new home.

We love first time homebuyers and would be happy to help you determine how much you can afford to spend on your new house. Contact us to learn more about the home-buying process, about securing your 15- or 30-year mortgage, specialty mortgage products and more. We’re here to help you find your ideal home and to do our best to make sure you are happy with the lending process.