Understanding Mortgages for First Time Buyers
Obtaining a mortgage loan, when purchasing real estate in Florida, can be done with ease when you understand the types of real estate you are purchasing. At Solutions First Mortgage Inc., we want to help you understand those unforeseen 3rd party costs of obtaining certain types of mortgage loans and the impacts to Debt To Income Ratios (DTI) a high DTI can be a reason for denial of your mortgage loan or a reduction in the funds to be available for you to borrow. A higher DTI could also affect the interest rate you will be offered or qualify for.
In Florida, it is very common to purchase a home in a Home Owners Association (HOA). The HOA fee(s), if mandatory, count toward your DTI. So a $200 monthly HOA fee for a borrower with $4,000 month income, is a 5% impact. This impact, with a note rate of 4.25%, could purchase you $35,000 of more house value, for the same monthly payment. Condo associations have very similar impacts, and with condo associations, you have to consider that you may have both a condo association fee and an HOA fee.
Insurance is mandatory with all mortgage loans. Since almost all of Florida lies in some type of wind zone of over 100 miles per hour, wind insurance coverage is generally combined with your standard home owner’s hazard insurance policy. The cost of wind insurance will increase when the home is in a higher wind zone, generally near the coast line. Other impacts associated with the cost of wind insurance, are the type and year of construction. For example, a home with a gable end roof versus a home with a hip style roof may see higher premiums. Another example, would be a home built in 1975 vs a home built in 2009; the newer home would have met the newer building codes, making this home more likely to withstand greater wind gusts–hence lower insurance premiums.
Flood insurance: when in a flood zone, flood insurance is mandatory, and in most cases can be priced reasonably. However, if your living area is lower than the 100 year flood elevation, this insurance can be very costly. A certificate of elevation can be completed as part of your survey. This needs to be completed in order to properly price your flood insurance. We recommend getting several insurance quotes as soon as you execute your purchase and sales agreement. If the cost of insurance will have such an impact, as for you to be denied the amount of financing applied for, we feel it is in your best interest to find this out early on in your real estate purchase and mortgage loan process, before spending several hundreds of dollars on inspections, appraisal, and surveys.
Certain types of financing may require specific inspections to be preformed. Appraisals, surveys, and an additional title insurance policy for the lender’s coverage will be additional costs you may have to finance in to your loan, depending on the amount of funds you may have available for your down payment and closing cost.
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