While the purchase of a new home is certainly very exciting, it is also a time where you should exercise caution. This is because your mortgage is likely the largest debt that you will ever sign your name for. Your home loan is a promise. It is a legal obligation to pay the balance of your home with the entity that provides home loans Springfield MO, usually over a 15 or 30-year period.
To repay your home loan debt, you will make monthly installment payments that include the principal, taxes, and insurance. Usually, taxes and insurance are tied into an escrow account. But before you are allowed to move into your new home, you will be asked to provide a down payment (usually 20% of the purchase price). While there are exceptions to the 20% down payment rule (you could sign off on expensive PMI, or private mortgage insurance), you should generally avoid buying a house for which you can not supply a 20% down payment. If you do not faithfully make your monthly payments, your home mortgage lender will have every right to take the home back (this is a process called foreclosure).
One very important consideration is the interest rate of your loan. This is the rate of interest that the lender charges over the life of the loan. You might hear the lender refer to “points.” Points are simply percentage points applied to the principal amount. You can avoid payment a ton of interest by paying extra principal each month of your loan. The impact this has on the amount of interest paid over the life of you loan is substantial.
Amortization is the paying off of debt with a fixed repayment schedule in regular installments over a period of time. The payments along this schedule are primarily comprised of principal and interest. In the early years of your loan, your payment will primarily go towards interest. This is why it is so important to pay extra principal each month if you can afford to do so.
You will be levied taxes against the home your purchase by your local community. These taxes are (generally) used to help finance infrastructure in your city or town. They are often used to build schools and roads.
Local taxes are one expense you will pay for as long as you live in your home – whether it is paid off or not.
Insurance is another cost that comes with home ownership. Even if you pay cash for your home, you should buy insurance that covers damage caused by fire, flood, theft, and other disasters that are beyond our control.
There are many things to consider when applying for or taking on your first home mortgage. Consider consulting with your local real estate attorney springfield mo.
We hope this basic primer has been helpful.