When you take a trip to the grocery store you either have a list of what to get or at the bar minimum know how much money you have in your pocket to spend.
Buying a Palm Harbor Home is no different. Many new home buyers make the mistake of looking at model homes with out truly knowing how the mortgage will affect their budget. A home mortgage is a big commitment and not something you can easily walk away from so it is important to know that you are looking at floor plans that will keep your monthly payment at a level you feel comfortable paying month after month.
A home mortgage these days typically consists of three to four payments in one. The first portion of the mortgage is the principal and interest or P&I. This is the amount that the bank receives to cover the balance of the total amount borrowed as well as the interest. Your initial down payment and interest rate are the two biggest contributing factors to your P&I. It is crucial that you know up front what your interest rate will be since the same home can go from say $700/month to $1000/month based solely off a higher interest rate. It is also important to know how much you will have to put down to make sure you have enough funds in the bank or at least a game plan on how to get there before you close. All of these items our covered with a housing consultant up front at Palm Harbor to make sure a customer has all the information they need to make an educated buying decision.
The second and third part of a mortgage payment is the taxes and insurance. Even though these items are paid on an annual basis, the bank collects the funds in monthly installments to keep in an account called an escrow account. The bank uses this money to pay your annual taxes and insurance fees at the beginning of every year. Palm Harbor Housing Consultants use estimates at the beginning to the home buying process, but since Palm Harbor owns their own insurance company, a customer can receive an exact quote once they have selected a home.
The final portion of a mortgage is referred to as Personal Mortgage Insurance or PMI and is only found in government backed programs such as FHA and USDA loans. This insurance is in place to protect the bank in the event of a foreclosure. In an FHA loan for instance, the government backs the bank for 80% of the loan. In this case, the PMI covers the remaining 20%. Since this insurance is only for 20% of the loan, it falls off after the remaining balance on your mortgage is less than 80% of the total value of the home.
All of these items combine to produce your total PITI (Principal-Interest-Taxes-Insurance) monthly payment. This is the number to use when setting a budget for your new home purchase. If you are a renter, it is important to keep in mind that taxes and insurance are not factored into your rental payment. Keep this in mind to set realistic expectations for yourself.
Palm Harbor makes it easy to for a customer to know their buying power before looking at home options. Request an appointment today with one of our housing consultants!