As a first time home buyer there is a lot of new concepts and terminology to get the hang of. The home buying game can be intimidating and you'll need to seek guidance to learn the lingo.
You've finally found the perfect home and are working out the finances with your real estate agent and mortgage broker. This step of the home buying process can be eye opening and a shock to the wallet in many ways. The costs of financing and closing on a home can be staggering and you may wonder what each of the elements are that are making your monthly payment rise each time you run the numbers.
Often as a first time homebuyer you don't quite have the twenty percent down on your home that is the standard when you use all those handy online mortgage calculators to figure out your payment. When you have less than the twenty percent down on the cost of your home, you are forced by the bank or mortgage holder to take out PMI, or private mortgage insurance. This protects or insures the bank against the possibility of you defaulting on your loan. The additional monthly cost of the private mortgage insurance can be a substantial line item and add a significant amount of money to your monthly mortgage payment.
Only once you have paid your mortgage down to 78% of the value of the current loan, and are in good standing with the bank, may they drop your PMI. Often times youll find it wont just be an automatic process by the bank. Its something youll probably need to call up and ask for. There may also be a chance you can get your home appraised if home values rise significantly in your area to prove you have 20% equity, and you then have an argument to drop the PMI. You will have to pay for the audit though, and it may not be a quick and simple process working with the mortgage holder to drop the insurance.
Mortgage insurance can be a pain on the pocket book and may seem an unnecessary cost for the struggling first time homebuyer, however this may just be the necessary evil that allows you to get a large loan in the first place. So save, save save your money and get that twenty percent down from the get go or expect to have higher payments for the first couple of years of your new mortgage loan.
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