Denver CO First Time Home Buyer Series – What Goes Into a Home Payment (Part 3)

In this article we are going to break down and discuss in a simple fashion the different aspects of a house payment:

Mortgage Payment = Principal + Interest + Property Taxes + Property Insurance + HOA Dues (If They Apply) + Mortgage Insurance (If It Applies)

When purchasing a home, most metro Denver CO home buyers will finance the purchase with a mortgage they have to make payments on. Those payments will usually consist of part principal and part interest.

Interest – The amount allocated to interest each month varies based upon the interest rate and term of the loan.

Principal – A typical loan will have a portion of the monthly payment allocated to reducing the principal balance which allows the loan to eventually be paid off. 

An Item of Note: Many home buyers will see interest rates quoted in news papers or online websites. The rates quoted there are typically given for prime borrowers that have excellent employment history, excellent credit and a good history of making payments. Interest rates which individuals receive will depend upon their individual situation and history.

Property Taxes in Colorado are determined partly upon the mill rate in the particular county and then combined with the assessed value of the property. Property taxes will vary widely based upon the county of location and the value of the property.

Another factor of property taxes included assessments for school districts which are included into the property tax amount.

Property Insurance – A lender will require that hazard insurance be carried on a home which they have a lien on at all times. The insurance will protect both the lender and the borrower from unforeseen damage to the property caused by natural events, fire, theft, storms and additional provisions provided by the individual policy. Lenders require minimum coverage levels and will need to approve the policy you choose. Premiums for property insurance vary greatly based upon home value, provisions and carrier.

When obtaining quotes for property insurance the first place to check would by with your auto insurance carrier (if you are happy with their service). Insurance carriers often give package discounts when multiple policies are carried with the same company. Saving money is a good thing so whether staying with your auto carrier or going with a new carrier it is a good idea to keep package discounts in mind.

Mortgage Insurance – There are lending options available which allow the home buyer to obtain financing with less than a 20% down payment. When taking advantage of these loans the lender will often require mortgage insurance which will protect the lender in case of default on the loan. The premium is paid by the home buyer. In FHA loan situations the insurance is called FHA Mortgage Insurance. In conventional financing the insurance is called Private Mortgage Insurance. 

Home Owners Association Fees – Within the metro Denver CO real estate market there are many properties which are in areas that require residents to belong to a local homeowners association. The association is there to enforce rules designed to maintain and increase property values, maintain common areas and make improvements. There is no opt-out. To own a home and live in the area membership in the HOA is required and agreed to by the purchaser in closing on the home. Each HOA will have its own set of rules and bylaws for the community. It is a very good idea to read these carefully so you are aware of them. The amount of the HOA fees will vary between communities and the amenities those communities offer their residents. In general the more amenities offered the higher the HOA fees.

A quick summation: Figuring a hypothetical monthly payment on a $200,000 home with a 5% interest rate, amortized over 30 years and a 20% down payment.

• Principal and Interest = $858.91
• Property Tax = $120.00 (estimated)
• Property Insurance = $80 (estimated)
• HOA Fees = $38
• Home Payment = 1096.91