2017complete3

application, even if the apartment has all the necessary permits. While a
rental apartment can still help you afford your monthly mortgage payment,
do not rely on it to secure the loan in the first place.
When you have determined the maximum monthly payment you can make,
you are ready to determine how much you can afford to spend on a house.
Once you own your home, you will be making monthly mortgage payments.
Each payment has four components, commonly referred to by the acronym
PITI: principal, or money borrowed to pay for your home; interest on your
loan; property tax; and home insurance. Toward the beginning of your payments,
a larger percentage of your payment goes to covering the interest on
the loan, but as you pay off more of the loan principal, each month you will be
paying more toward the principal and less in interest.
To illustrate the amortization
process, consider a typical
30-year mortgage of $300,000
begun in 2016. At a 5% interest
rate, the monthly mortgage +
interest will be about $1500, but
only about 20-25% of that will
initially go towards principal; the
rest will pay interest. It will take
about 24 years until that ratio is
reversed, so that by March 2040
80% of the payment will be
towards principal while the rest
goes to interest. By 2046, you
will own the home free and clear.
Amortization refers to this process
of decreasing the amount of loan
principal over time; an amortization
schedule, provided when you obtain
a mortgage, will show you where your
dollars are going over the length of
the loan. A mortgage calculator can
show you how the breakdown progresses.
You can find a mortgage
calculator online, or use an app that
doesn’t require internet access.
Bear in mind that your monthly payment
is not absolutely fixed; your
property taxes and insurance payments
may rise, so be prepared for your
payments to increase even though your
interest rate stays the same.
Although loans are usually structured for the lender to escrow for your taxes
and insurance, you may be allowed to pay them independently if you prefer;
discuss the possibility with your mortgage professional.
Additional closing and ownership costs
Remember that affording the down payment and monthly payments is not
enough; you aren’t done yet!
If you are buying pre-construction, there may be many upgrades you will
50 | 2017 Lakewood Home Buyer’s Guide