Mortgage Payments | New Homes Market Center
Once you determine your down payment and target purchase price for your new home or the construction project’s total payoff, you can determine the monthly mortgage payment range. This is considered a range because the interest rate on the specific mortgage loan you choose affects the monthly mortgage payment. When pre-qualifying, it is wise to base the qualification on a higher interest rate than where current market rates are so that if interest rates go up before you lock in, the pre-qualification stills stands. Remember that mortgage interest rates change daily, and you are subject to those changes until you have a contract on a house and have locked in your interest rate or if building a custom home, you are near completion and your permanent financing is locked.
The mortgage payment of your permanent financing consists of PITI:
P – Principal: The principal portion of the payment is what you pay monthly to pay off the balance of the loan.
I – Interest: The interest is what the lender collects for the loan.
T -Taxes: Taxes are the property taxes for the area of the house you are purchasing. Different areas may have different tax rates. This is an important factor when determining where to live. If you buy a new home in Austin, the tax rates will vary with each subdivision.
I – Insurance: Homeowners Insurance is also called hazard insurance; this is the insurance you have on your house to protect against storm, fire, theft, and other instances included in your specific policy.
Monthly Mortgage Payments might also include:
Mortgage Insurance: Lenders require mortgage insurance when the first lien amount exceeds 80 percent of the total value of the house. However, there are ways of structuring loans so you can put nothing down and still avoid mortgage insurance.
Second Lien Payment: This is a lien in second place to the first lien. It is usually a higher interest rate and can take the place of paying mortgage insurance.
Flood Insurance: If the house is in a flood zone, your lender will require you to pay flood insurance.
HOA: If you buy a new home in Austin, many of the subdivisions require a monthly, quarterly or once a year Home Owners Association fee for neighborhood maintenance and management.
TIP: Use our mortgage calculator now to calculate a monthly mortgage payment for your new home.
In Texas, the term used by the lender when they collect your taxes and insurance with your monthly house payment is “collecting escrows.” On some loan programs, you can choose to waive this option and pay them on your own. When you close on a house and you want the lender to collect your escrows, they will require that you set up a reserve account and request three months of taxes and two to three months worth of homeowner’s insurance in advance.
Depending on the lender, if you waive the escrow option, the loan pricing may be slightly higher, and you may incur a penalty of a quarter of one percent of the loan amount or no penalty at all. The benefits of waiving escrows are that upon closing, you will not pay the three months of taxes and insurance, and you can earn interest on the money during the year until your taxes are due. A disadvantage to waiving escrows is that without a disciplined approach in saving the money you will need for taxes, you may fall short at the end of the year. In either case, when you close on the loan, you always have to prepay one years worth of your homeowners insurance. Talk with your lender to determine the best option for you.
In Austin, the tax assessors appraise residential property around the month of April. If you buy a new home in Austin that was not complete before it was assessed then it is possible the new home would be taxed for the rest of the year at the unimproved land amount. You can expect the taxes to increase the next year when the property is reassessed. Since the property tax bills do not come out until October, many people have payment shock when they have an escrow account or have not saved enough for taxes when this increase takes place. If you start the year with this in mind it may give you time to save for the difference in your monthly tax payment.
TIP: Your lender or Realtor® with New Homes Market Center can answer your questions about calculating a mortgage payment.