Because people are often using a “Mortgage Payment” Calculator, they also get confused about why the Principal and Interest Payment with Taxes and Insurance can differ so much. For instance, we received this question last week:
Why do the Taxes and Insurance seem to double with 3% down, as opposed to 20% down?
House costs 174,000 dollars. With 20% down, the Estimated Monthly Payment for taxes and insurance is $187. However, with 3% down, the taxes and insurance climb to $352! Why is this?
So, first off – Taxes should be the same on a property – no matter how much you put down. The taxes are not calculated based upon the Loan amount, it’s based upon the Value of the property. If you are comparing estimated costs given to you by 4 different loan officers, it’s possible that you will have 4 different numbers…. Does that mean you should just use the loan officer with the lowest Estimate? No. It’s an ESTIMATE. The taxes are the taxes – and the loan officer is trying to “guess” what the taxes are going to be. We think it’s a good idea to check with other members of your Buyers Team (like your Agent) to get the most ACCURATE picture of what your tax bill is likely to be.
In Wake County for 2013 the rate is 92 cents per hundred plus $20 for recycling. We generally estimate $1 per hundred… so in Wake County if you are purchasing a $200,000 house: You would divide $200,000 by 100; multiply it by a buck and divide that by 12. You pay the annual tax bill with your monthly payment. (The Raleigh and Cary taxes, etc. are included in the 98 cents. If you are buying in the County it’s substantially less.)
Home owner insurance premiums are also based upon the property’s value. This is the Insurance that you would use if your house burned down (for instance). The estimate you get for THAT kind of Insurance is ALSO an estimate from the Loan Officer. It will vary WIDELY based upon how much deductible you have, how far the property is from a fire hydrant, what type of Roof Material is used. Again, we strongly suggest you get the “actual” number from your Agent. The number we give you is usually pretty accurate, because we see sooooo many policies each month. If you are shopping for insurance, ask us who we’ve seen with the best rates. It varies.
Okay, so if Taxes are pretty much fixed, and Homeowner’s Insurance is pretty much fixed… how come the taxes and insurance varied so much for the guy’s question above? Because there’s another TYPE of Insurance. We call it Default insurance, or PMI. Each mortgage program has it’s OWN form of Default Insurance, generally referred to as Mortgage Insurance.
If you put anything less than 20% down you will have to pay Mortgage Insurance (called MIP, MI or PMI) which is essentially foreclosure insurance for the bank. On a Conventional Loan, that will go away after a certain number of years or you can have it removed when the balance of the loan is less than 75% of what the home is worth, but you’ll have to pay for an appraisal at that time to prove it.
FHA just made notice that starting in 2013, the FHA PMI will remain on the loan for the life of the loan (with no refunds – plus the FHA PMI Rate is going up in 2013). USDA Home Loans also have a monthly PMI fee that will remain on the loan no matter how much equity you have in the property. (These types of mortgages are STILL REALLY great first time home buyer programs!)
If you have questions about Calculating Monthly Mortgage Payment and the Difference in PMI and Homeowner’s Insurance on a new home, or you have questions about a First Time Home Buyer Program in NC – please call Steve and Eleanor Thorne 919 649 5058. Connect with us on Facebook, or Google Plus+ We’d love to answer YOUR questions! 🙂