When it comes time to buy a home, most of us don’t have a few hundred thousand dollars waiting around in our bank account with which to make the purchase. Instead, we contact a lender who will set us up with a mortgage. Our friend Jeff Gilley, with local lender, Alpha Mortgage, dropped by to help us understand what that’s all about.
What is a mortgage?
“A mortgage is an agreement between you and a lender that they will let you borrow a certain amount of money and in return you will pay it back, with interest, over a predetermined period of time. It is ultimately a legal document that pledges a property to the lender as security for payment of a debt.”
Can you explain what makes up a mortgage payment?
“Generally, a standard mortgage payment is made up of your PITI, which stands for principle, interest, taxes and insurance.”
Can you explain each part of the PITI?
“The principal is the amount you are borrowing. This is the part of your monthly payment that reduces the remaining balance of the mortgage.”
“When you get a loan from a lender, you agree to pay a certain percent of the principal to the lender for letting you borrow that money, this is called ‘interest.’ Interest rates are affected by many variables, among them are federal monetary policy, market-based factors, your personal credit score and debt-to-income ratio, as well as the amount of your down payment.”
“Property taxes, also called real estate taxes, vary drastically depending on where you live. Property taxes pay for things in your community like public schools, roads, parks, public safety and more.”
“Most lenders require home insurance as part of the mortgage deal. This is how we know that the asset on which we are lending is protected. We estimate the annual cost of your yearly homeowner’s insurance premium and prorate it by month, then you pay the monthly amount as a portion of your mortgage payment.”
My Sea Coast Advantage agent said it would be best if I get preapproved? What does that mean?
“Preapproval is the process of determining how much money you will be eligible to borrow before you apply for a loan. This helps you understand how much home you can afford before you start shopping, so you can be realistic about your home search, and sellers know that you are a qualified buyer.”