Housing Costs: Factors that Contribute to My Monthly Payment
When searching for a home you may realize that there are a lot more factors that contribute to your housing payment than you expect. You see taxes, insurance, Homeowners Associations, and even CDD fees. It can all be confusing, overwhelming, and depending on the combination the payment may end up being a lot more than expected. So here we will break down the variables on your housing costs so that you can have a better understanding of exactly what you are shopping for.
Principal and Interest: The two constants of housing costs
Every mortgage loan will have principal and interest as part of your housing cost. Principal is the amount of payment going towards your debt that increases your equity. Interest is the financing costs that the lender / bank charges for you to have that loan. As you pay down your mortgage or make payments your principal balance (amount owed) decreases and as a result your amount of each payment that goes towards principal increases and interest costs decreases.
Mortgage Insurance (a housing cost): On most loans with a 80% loan to value or higher
Mortgage Interest is a very common factor in the housing costs. For loans with an 80% LTV or more the loan is likely to have some type of mortgage insurance premium charged monthly.
FHA loans the mortgage insurance premium stays on for the life of the loan (unless 10% or more is used for downpayment).
VA loans do not have mortgage insurance premiums
Conventional loans vary, some conventional loans will have no mortgage insurance premium options (as a result the interest rate is usually higher for the life of the loan) and with all conventional loans mortgage insurance premiums eventually fall off (usually at 78% loan to value)
Insurance Premiums: A Housing Cost for Every Loan
Insurance premiums are REQUIRED for any property that has a mortgage loan on. The mortgage holder will want to make sure that the property is covered for a minimum of what the loan being taken out on the property is. Depending on the loan program you may have an option to waive escrows and pay your insurance (and taxes) annually when they become due so it is not a monthly expenses but it still a housing cost that you will have related to your property.
The type of insurance will vary depending on the property. Condos have special policies, properties located in flood zones or coastal communities may require wind / flood policies. The cost of the policy can vary dramatically depending on the location, age and condition of the home. Older homes with older roofs, appliances, and systems will likely carry a higher policy premium than homes with newer systems that are built up to the most recent building codes. The cost of having to carry multiple policies (if say flood and homeowners are required) could increase your housing costs dramatically.
Taxes: County Taxes and the Homestead Exemption (housing costs)
There is the old saying, “Nothing in life is certain but death and taxes,” the same applies to real estate taxes. All land and properties have real estate taxes. In the state of Florida the amount of taxes can vary dramatically from two different properties that are seemingly the same. There are many factors that contribute to taxes in the state of Florida (discussed below) that can make some taxes high and others low.
The Homestead Exemption – Florida is a homestead state and offers a homestead exemption to all residents that make their home their primary residence. The Florida resident with a homesteaded property can save $50,000 off the assessed value for homestead exemptions. The average savings is about $900 annually ($75 a month). In order to apply for a homestead the owner must occupy and own the home from December 31 – January 1. If the property is already homesteaded the exemption will continue. If the property is not homesteaded the new owner will need to file for the application by March. Most counties allow for early application but the exemption is not added until the owner’s have resided in it on January 1st.
“Save Our Homes” Amendment – In the State of Florida a home with a homestead exemption placed on will also be covered in the Save Our Homes provision. What this means for the owner is that the taxable value of the property cannot increase more than 3% or the change CPI index (whichever is lower). For people that stay in their home in keeps taxes low. When the property ownership is transferred the cap is reset and adjust to the current assessed value. However it is possible for residents to port (move) some of their existing cap to their new homesteaded property.
So back to the above scenario: House 1 and House 2 are identical both built in 1990. House 1 has been primary residence and homestead since 1990. House 2 was just recently sold to an investor and the investor has updated and relisted the property. House 1 is sure to have taxes that are much less as the property will have fallen under the Save Our Homes and Homestead Exemption Provisions while House 2 is not homesteaded and has recently changed ownership therefore resetting the cap.
How’s this matter to me? Depending on the history of the home you are buying the initial housing payment (and therefore effect on your debt-to-income ratio) may be much lower if taxes are lower.
Community Development District Dues: The New Type of Community
What is a Community Development District (CDD)? Great question! A CDD is a specialized government framework that develops a new community early in the process. Generally this makes for town-like communities within larger cities that offer many community amenities. Within the CDDs there are often Homeowners Associations all communities within the CDD fall into the Master Plan.
Homeowners’ Association Dues: Never Escrowed
HOA dues are never escrowed and the frequency and amount will depend on your HOA. There are some properties that will have multiple HOAs, this happens when (similar to CDDs) there are smaller communities within a larger community. HOA management companies will bill directly to the homeowner usually on a quarterly, semi – annually, or annual basis. The fees may sometimes fluctuate depending on the HOA board and budget.
Condo Associations: Monthly Assessments
Condo Associations apply to properties classified as condominiums. These fees are typically charged monthly and tend to me more expensive than other types of communities. The condo dues will cover all exterior aspects of the condo as well as any common elements.
So let’s review! There are many factors that contribute to your overall housing payment. These items are most often:
Principle and Interest
Mortgage Insurance Premiums (Monthly)
HOA/ Condo Fees
If you have any questions about housing payments and what you can qualify for please contact us at Carbon Capital! Please also check out www.MortgageNewsDaily.com for updated detailed rates and articles within the industry.