What’s included in a mortgage payment?

If you’re buying your first home, it might seem like going from paying rent to paying a mortgage is merely switching out one monthly bill for another.

But rents and mortgages differ on a couple of levels. For one, mortgage payments contribute to your stake in the home. The more payments you make, the more of the home you legally own.

The other major difference is what a mortgage includes. While rent is simply a once-a-month fee, a mortgage payment comprises what is known as PITI.

That acronym stands for:

  • Principal: This portion of your payment goes toward the total balance of your mortgage loan, without any other charges. 
  • Interest: This is the extra cost of financing your home. Your interest rate (which is set when you apply for the loan) determines how much interest you pay annually.
  • Taxes: As a homeowner, you’ll need to pay property taxes. These are typically paid monthly as part of your mortgage, and they could be included in your escrow account.
  • Insurance: Your homeowners insurance policy, which can also be paid using escrow, protects your home from weather damage, theft and other potential issues. If you require private mortgage insurance, that will add to your monthly costs as well.

If you’re considering buying your first home, it’s essential that you understand what goes into a mortgage payment — as well as how you pay off that loan year over year.

And don’t assume that all of the monthly fees add up to more than your rent, especially when you consider the equity you’ll be building.

Want to learn more about the costs you can expect when purchasing a home? Get in touch today if you have questions.

Need Money? Equity May Be the Answer

As a homeowner, your equity is your secret weapon. With every mortgage payment you make, your stake in the home grows — and so does your equity.

When your equity stake is large enough, it can be used to improve your financial standing. Tap into it to pay off debts, use it to cover home improvement costs or, most importantly, consider it a safety net in case of emergency.

Have you been paying down your current mortgage for some time? Then you probably have equity to tap. So what can you do with it?

  • Home Equity Loan: This is a loan you take out in addition to your existing mortgage. It lets you borrow against your stake in the home in exchange for a lump-sum, one-time payment. 

    Often, you’re able to borrow up to 85% of your home’s appraised value, minus what you owe. Many homeowners use these for large expenses like tuition, medical bills or the down payment on an additional property.

  • Home Equity Line of Credit (HELOC): HELOCs work like credit cards, only without the sky-high interest rates. The equity in your home is used to create a line of credit that you draw from as needed. 

    HELOCs typically come with long draw periods (think decades) and are often used for ongoing expenses, like regular home improvements or maintenance. This method should allow you to borrow 75% to 80% of your home’s appraised value, minus what you still owe.

  • Cash-Out Refinance: Refinancing essentially replaces your existing mortgage loan. You take out a new loan larger than the balance on your current one, and then keep the difference in cash to cover whatever expenses you’re facing. 

    You can typically borrow up to 80% of your equity with a cash-out refi. Some homeowners use the money to pay off debts or high-balance credit 

Do you know which documents to prep?

Want a fast and easy homebuying process? Of course you do. So how do you set yourself up for success? Start gathering your paperwork.

It may not be the most exciting part of buying a home, but it’s necessary to see where you stand and what you qualify for. Having your current financial records pulled and ready to go is the first step.

Here’s what you and any co-borrowers will need for a smooth loan process:

Income:

  • W2s or 1099s for the past two years 
  • Pay stubs for the two most recent pay periods
  • Income tax returns for the past two years (especially if you’re self-employed)

Assets:

  • Bank statements for any checking, savings or investment accounts (including 401(k)s, IRAs, etc.) for the past two months
  • Records of any other forms of income you receive (Social Security payments, child or spousal support, etc.)
  • Statements for assets, including stocks and bonds

Will you be receiving a financial gift from friends or family to pay for your down payment or closing costs? Then you should also have a gift letter to disclose that amount of money. And don’t forget to bring a copy of your driver’s license, as well as that of any co-borrowers.

Keep in mind that you may be asked for additional proof of income and assets. It will depend on the loan you’re applying for, as well as your employment status, income, debts and other unique financial factors.

Making a Competitive Offer on a Home

Finding the right home is only the beginning of your homebuying journey. After that, you’ll have to make an offer — one that both protects your interests as a buyer and helps you stand out from other bidders.

That last part is especially important if you’re buying in a seller’s market, where housing inventory is low and buying competition is high. Want to make sure you make the right offer and snag that dream home? Here’s what you’ll need to know:

  • Tap into your agent’s expertise. Your real estate agent can research the local market for pricing, the number of active listings and more. Being informed about comparable sales can help you make a competitive offer. 

  • Make the right earnest money deposit. Earnest money is used to protect the seller if you back out of the deal. The more you offer, the more confidence they’ll likely have in your bid.

  • Consider your contingencies. Contingencies can be written into the offer to protect your interests as a buyer. But note that a seller’s market may not be suitable for contingency offers.

  • Factor in renovations and repairs. Is the house going to need major repairs before you move in? Factor these expenses into your offer and adjust the price as necessary.

It is possible to make your dreams of homeownership a reality. But keep in mind that you’ll need to have your financing in order before you make an offer on a home.

If you’re starting your homebuying journey and need financing, reach out today.

Yes, You Can Save Money And Pay Off Debt

If you’ve got a mortgage, you probably want to pay it off sooner rather than later. But how do you do that when you’re busy just getting by? More importantly, how do you do it while also saving for the future?

It takes the right planning, tools and mindset. But paying off your loan and saving for retirement at the same time is an attainable goal. Start with these steps:

1. Use windfalls strategically. Are you expecting a bonus or a big tax refund? Don’t spend it all on new clothes or a fancy vacation. Instead, use that windfall to get one step closer to your goals. Put at least some of the money in a high-interest savings account, or use it to make an extra mortgage payment.

2. Make realistic savings goals. Everyone would love to have millions in the bank, but that isn’t always possible. Instead of shooting for the stars, set realistic, incremental savings goals. That way you can reach them while still supporting your household.

3. Create a budget. Planning where your money goes ahead of time can be super useful. You should create an overall budget, mapping out how much to spend on items like entertainment and groceries. Again, make sure the budget is reasonable for your family’s needs. 

4. Find helpful tools. You don’t have to go it alone. Money-saving tools and budgeting apps can help you cut costs and save more. Best of all, they’re conveniently available on your phone.

When it comes to saving and paying off debts, staying the course is crucial. And you might even be able to make it easier by refinancing your mortgage. Reach out today for more information.

4 Essential Furnishings for Your Home

Versatility is often crucial in home furnishings. You never know when you might need to move a piece or rearrange your whole layout at the last minute to accommodate guests. 

So take a step back and assess: How versatile are your home furnishings? If they’re lacking in flexibility (or if you’re planning to furnish a new house in the near future), make sure to work these multipurpose pieces into the mix:

Side Tables: A pair of side tables gives you a place to set drinks in the living room. But they can also offer quick, easy and accessible storage, keeping your space from getting messy and cluttered. You can use side tables to hold your belongings next to your bed too.

Simple Dressers: Use them for clothes, linens and blankets in a bedroom or hallway and for towels in the bathroom. You can hide a dresser in the closet if you’re not keen on their aesthetic but still need the storage space.

Slipper Chairs: These simple, upholstered pieces are lightweight, easy to move across the house and great for entertaining. Pick a neutral color so it won’t throw off your design scheme when moved around. They can be kept in the bedroom, living room or dining area.

An Ottoman: It can be used as a footstool or seating in a gathering space. Get one that can also serve double duty with storage capabilities. Opt for one that can be used as a coffee table to really make the most of this piece.

When you’re buying new furniture for your home, think beyond its initial and immediate use. Could you move it to other areas of the house? Those are the furnishings worth investing in.

Do you need help financing a home makeover? Have questions? Get in touch today.