Buying a house and signing a mortgage doesn’t have to be as scary as it seems.
Congrats! You’ve found the perfect home. Before you started searching, you probably got preapproved for a mortgage, which is an offer from the bank (not a commitment) to lend you a specific amount. And it’s usually good for 90 days.
When you get pre-approved, you can also lock in your interest rate (which is important in case they go up). If you don’t find a house in that time, you can get pre-approved again. However, one thing I wish I knew before getting preapproved was that after the 90 days, your interest rate won’t be locked in anymore. So keep that in mind as you’re looking for your new home.
Here are a few other things I wish I knew before signing a mortgage.
Your mortgage will go up every year
Every year as your taxes go up, your mortgage will go up too. Yes, I knew that taxes were bound to go up. But what I wish I knew before signing a mortgage was how much they’d actually go up each year.
You’ll get a tax refund every year (but it might get lower and lower)
The School Tax Relief (STAR) program offers property tax relief to eligible New York State homeowners. You can receive the STAR credit if you own your home and it’s your primary residence and the combined income of the owners and the owners’ spouses is $500,000 or less. But you need to sign up as soon as you take ownership of your home. As long as you sign up for the STAR credit, you are eligible for a refund each year. What I wish I knew was that that check amount gets lower each year.
You need homeowners insurance before you sign your mortgage
Before you close on your house, you need to have secured homeowners insurance. In fact, you’ll need that paperwork when you go to the bank for closing.
Understand what a PMI is (private mortgage insurance)
I learned what private mortgage insurance, or “PMI,” was as I was going through the homebuying process. Not everyone needs it, but if you make a downpayment of 20% or less (which, let’s face it, in this market that might be the case) you might be required to buy private mortgage insurance. PMI protects the lender – not you – if you miss a mortgage payment.
Closing fees can get pricey
Again, while I knew that there would be closing fees, what I wish I knew before signing a mortgage is just HOW expensive those closing fees are. It’s best to ask your lawyer or real estate agent before you start the process so you can be ready for those costs.
There’s a LOT Of paperwork
There is so much paperwork when signing a mortgage on your new home. Your lawyer should provide a copy for your review before closing. It’s best to read everything before you sign so you aren’t surprised by any costs or fees.
Mortgage lender vs. bank
Growing up, I just assumed you went to a bank to get a mortgage loan for a home. What I wish I knew before signing a mortgage was that you could use a mortgage lender to help you get the best rate.
Something I learned along the way is that you should consider making an extra payment each year to lower your principal. By doing this, it could shave a year or two off of your loan. Just be sure when you make that payment that the extra funds go directly to the principal, not the interest.
Happy house hunting!