Home Financing And Payment Details To Understand With Your Next Home Purchase
As you prepare for the homebuying process, you need to get your finances and credit in order and select an area and type of home you want to purchase. Along with these important details, you also should be aware of some details related to the funds and financing of your home purchase. Here are some important details you need to be aware of and understand when you purchase a single-family home.
Earnest Money Versus Down Payment
As soon as you begin hunting for a house to purchase, you should already have some funds saved up and available that you can use as an earnest money deposit. But don't get the earnest money confused with your down payment. An earnest money deposit is different than a down payment, but it can be just as important.
When you submit an offer to purchase a home, the seller of the home and their agent receives your offer and the notice of your earnest money that you have put toward the home's purchase. This money shows the seller you are serious about making the offer to purchase and goes into an escrow holding account.
And an earnest money deposit is also nonrefundable to you in certain circumstances. For example, if you make an offer to purchase a home and then you later break the contract and decide to back out of the purchase, the earnest money will go to the home seller. Be sure you talk to your agent about when your earnest money deposit may be forfeited. Otherwise, your earnest money will go toward paying the closing costs and purchase of the home.
Private Mortgage Insurance
When you apply for a mortgage to finance your home's purchase, you will likely need to borrow more than 80 percent of a home's value. Some buyers even choose to borrow up to 100 percent of a home's value, which can be common in today's real estate market. When you don't have the funds to make a down payment, you can borrow up to the entire amount to purchase the home, but you need to be prepared to pay for private mortgage insurance (PMI).
Private mortgage insurance is charged by the mortgage company to insure the loan against a default on your end. So, if you end up not paying off the loan, the mortgage insurance is coverage to pay off the remaining balance as a protection for the mortgage company.
If you have PMI on your mortgage payment each month, you won't need to worry about paying it for the life of the loan. Once your mortgage balance reaches below approximately 78 percent of the loan's total or the property's value, the PMI is no longer included in the mortgage payment.
Share