When you borrow a mortgage, you’re signing a legal contract promising to repay the loan plus interest and other costs. Your home is collateral for that loan. If you don’t repay the debt, the lender has the right to take back the property and sell it to cover the debt, a process known as foreclosure, which will severely damage your credit.
The principal is the total sum of money you borrowed to buy your home. To lower your principal amount upfront, you can put down a down payment. Typically, lenders require you to make a down payment equal to 20 percent of the home’s purchase price to get a mortgage, but this can vary.
Interest is what the lender charges you to use the money you borrowed. Principal and interest comprise the majority of your monthly payments in a process called amortization, which reduces your debt over a period of time. In addition to your principal and interest, your mortgage payment will likely include taxes. The taxes are property taxes your community charges based on the value of your home. These taxes generally go towards financing the costs of running your community – for example, to build schools, and to provide certain public services.
Lenders won’t let you close the deal on your home purchase if you don’t have home insurance, which covers your home and your personal property against losses from fire, theft, bad weather and other damage. There are several types of insurance that might be required along with your mortgage. If your home is in a high flood-risk zone within a flood plain and you are signing for a federally insured loan, federal law mandates that you must buy flood insurance.
If you choose to get a conventional loan, and you put down less than 20 percent of your home’s total value at closing, your lender will likely require you to pay private insurance or PMI. PMI protects the lender from you defaulting. You will have to make PMI payments for two years or until your balance shrinks to 78 percent of the home’s original purchase price. If you choose a loan backed by the Federal Housing Administration, you will have to pay insurance. The insurance works the same as PMI, however, you will have to make these payments for 11 years or for the life of the loan, depending on your loan terms and down payment amount.
If you have questions about getting one (or a home loan) for a real estate purchase in Saint George, the experts at Holiday Resort Realty can help you with additional information.
What is a Mortgage?
Mortgage
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