From obtaining a mortgage, to selecting the right real estate agent, buying that first home can come with a variety of hurdles to be cleared. And not clearing those hurdles — or not clearing them cleanly — can result in extra costs either now or down the road.
When we bought our first home, there were plenty of things we still didn’t know about the process. However, we learned quickly some of the crucial financial elements that are involved in such a process and just how much they can help our hurt us when buying a home and acting as homeowners.
Our credit score
We bought our first home in 2008. Up until then, we’d never paid much attention to our credit score. However, after getting our first credit report, I realized just how valuable, and how easy to get it was to get.
After that point, I began utilizing annualcreditreport.com to run quarterly reports for both my wife and I. It allowed us to keep an eye on our credit report and watch for potential issues.
The difference between a 15 and 30 year mortgage
According to creditloan.com, “After 30 years of making payments, a homeowner with a $240,000 mortgage loan will have paid over $580,000 on his/her house.”
We used a mortgage calculator to help us run the numbers on our house. In our case, the difference was nearly $133,000 in interest, so we went ahead with the higher payments but lower overall payoff amount of a 15-year mortgage.
How a loan is amortized
One thing that truly surprised me once we purchased was the amortization schedule we received from the bank that broke down our monthly mortgage payments between interest and principal. Starting off, the breakdown in payments wasn’t an even 50/50 split. Instead, our first payment had $598.21 going toward principal and $739.06 going toward interest. The two amounts didn’t even out until payment number 26 on our amortization schedule.
The costs of obtaining a mortgage
There are a variety of costs that can go into obtaining a mortgage. The application fee, underwriter fee, cost of a credit check, mortgage insurance, and similar expenses can drive the cost of a just getting a mortgage into the thousands of dollars.
Had we to do it over again, we would have paid more attention to these costs since they came as an unexpected surprise and added several thousand dollars to the cost of our home purchase.
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The author is not a licensed financial or real estate professional. This article is for informational purposes only and does not constitute advice of any kind. Calculations have not been verified by a professional. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.