Tag Archives: principal mortgage insurance

Does A Mortgage Payment Include The Taxes And The Insurance ?

Mandy asks…

Does a mortgage include property tax and insurance?

My girlfriend and I are looking at buying our first home.   The house is listed at $259,900.  The estimated mortgage that is being shown on the ad for the house is only $1,320.00.  So it seems that it is very cheap for that price. 

This is the first time that we have gone through this as being first time home buyers. I’m just curious that there are no other costs and that we can afford the payment.  And that includes everything so just want to make sure we really can afford it and no surprises.  Thanks.

admin answers:

No.

Sorry but it looks like that $1,320.00 is more than likely nothing more than just the interest and principal.  Meaning that it does not include the taxes and the insurance that is most likely required by your lender for most first time home buyer loans.  Not to mention depending on what type of loan you are getting you will also have Principal Mortgage Insurance (PMI).

I know on many forms of Real Estate forms of advertising whether that be the internet or some kind of print advertising some really nice low payment.  Sorry to say that is not the full picture of what the real mortgage payment is.  Its not that its bait and switch its just not really giving the full picture.  It really is the payment for the loan but the reality is that it is not what your lender will require you to pay for the loan.  It is meant to entice you and get you to call for more information.

For example in Santa Barbara county using 1.25 of the purchase price not the loan amount then dividing by 12 will give us an estimate of your payment for taxes.   That will give you an extra $270.00 a month.  Now being that you are a first time home buyer and if you are not getting a VA loan and getting maybe a FHA loan you will be looking at PMI which is currently a 1.35% factor than divide by 12 giving you $282.00 additional on top of your loan payment.  Now you still have to get homeowners insurance which is required by the bank to have you can choose who you get insurance from, but lets just add $70.00.  So your real payment out the door with nothing else to add unless you are living in a gated area or something like that wiht homeowners Association fees (HOA) your REAL payment would be more like $1,942.00.  I hope this is more of a clear answer for you and good luck!

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What Is Principal Mortgage Insurance

Here is the thing you are basically forced to buy and pay for private mortgage insurance or PMI or principal mortgage insurance with the condition that you put down less than 20 percent on your home. It gives your financial institution an opportunity to recover its losses in case you face a dilemma at the time of repayment.  At the time of the boom years, majority of home buyers did not even bother with it since there were loans with 100% financing well those days are over now.  Not to mention as of now in 2013 FHA loans the mortgage insurance is for the life of the loan since FHA took so many losses.

The guidelines for private mortgage insurance on conventional loans usually allow you to request it be cancelled at the time of the balance of your mortgage when equals 80 percent of your house value.  Now this is not automatic and you will have to request an appraisal to verify the value but it can be done.  In case if you only put 10 percent down and your house values has dipped a bit or more than it make take some time in achieving the 80 percent mark. Nevertheless, simply because the values of your place has decreased, it doesn’t suggest you can’t get rid of PMI within a short time frame.   You can always make extra payments to the principal to help pay down your mortgage as well.  Fact of the matter is that you don’t qualify for automatic private mortgage insurance revocation until the mortgage balance reaches the figure of less than 80 percent loan to value.

The problem is that usually the insurance is a few hundred a month so that is an extra expense that does the home owner no good other than allowing him to get the home loan.  One option that a buyer may have is paying an upfront mortgage insurance that can run about 2 % of the loan amount.  But that is a one time fee and its paid at the time of purchase usually reserved for good borrowers.  So for example on a 200k loan that may be 4k upfront but it can sometimes be financed into the loan BUT REMEMBER NO MONTHLY INSURANCE PAYMENT.  But same scenario for example on a FHA loan you have to pay 1.75 % upfront and then 1.30 % monthly.  So on a FHA loan that is $3,500. up front and then every month $216.67 EVERY MONTH.   But again every scenario is different and the conventional is usually at least 5% down payment vs. the 3.5% down payment.

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