Home Ownership Part Two

Home Ownership... Are you ready?

We are continuing with some common and not-so-common questions that might come up when buying a home.

What is a mortgage/dead of trust?

And why do I need to know?  Most buyers will sign a deed of trust at closing.  Keep in mind that the amount of paperwork you will be signing is astounding.  Most of these documents will be generated by your lender when you are the buyer.  Basically, a deed of trust is the security for your loan.  It’s a publicly recorded document and involves three parties: the trustor – this is you, the buyer; the trustee, usually your lender and the entity that holds the legal title of the property and the beneficiary, the lender.  In a nutshell, it’s a legal document that says “the trustor/borrower” pledges the home as collateral for your loan.  If you don’t make the required payments, your lender “the trustee” can foreclose on your house.  Your deed of trust will have a legal description of the property being used as collateral for the mortgage loan, who is buying the property, who is lending the money for the property, the beginning date and the ending date for the mortgage, the mortgage requirements and any other legal procedures.

What's included in your mortgage payment?

Your monthly mortgage payment is applied to the principle and interest of the loan that you used to purchase your home.  Many lenders will also include local real estate taxes, homeowner’s insurance and possible mortgage insurance (we will get to that later). When these items are a part of your monthly mortgage payment they go into an escrow account and the lender will then pay those costs for you from that escrow.  Keep in mind that taxes and insurances can significantly impact the amount of your monthly payment and should be factored in to what you can afford. If your lender doesn’t offer an escrow account for your loan, you will need to budget your money to pay these bills.  The amount your down payment, the size of the mortgage loan, the interest rate, the length of the repayment term and the payment schedule all affect the amount of your monthly mortgage payment.

How much mortgage can I afford each month?

First, take a look at your current monthly expenses. Second, consider any other costs that could impact your monthly mortgage payment and any expenses that can be incurred by purchasing a home.  Expenses include expenses that you currently have and that you will continue to be responsible for after you buy your home.  This includes car payments, credit card bills, student loans, utilities, cell phone, etc.  Usually, you want your mortgage to be 31 percent or less of your gross monthly income.

What are some of the others fees and expenses that you're responsible for after you buy a home?

Well, the expenses don’t just end with the home loan.  You will also be responsible for paying property taxes and homeowners insurance if they are not included in your monthly payment. We mentioned this earlier.  There will also be unanticipated expenses, like repairs, replacing broken appliances and regular maintenance on your home and property.  These expenses will vary depending on the home purchased and the amenities of your home.  For example, if you buy a home with a pool or extensive landscaping, it will add additional costs to your budget.  The more amenities, the more you need to be prepared for unexpected expenses.  Things like repairing or replacing furnaces and roofs can be costly.  Also, if you buy a home in a planned development, more than likely, there will be either a homeowner’s association fee or monthly condo fees.  There are also utilities, phone, cable and internet services to consider.