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First off, congrats on buying your first house! It warms my heart to think you'll be planting azaleas, cleaning out the garage, mowing the lawn, and raking leaves while I console all the women here who wonder what happened to you.
Bluntly, I think that the mortgage companies deliberately made the whole process as confusing as possible. Wait till you close and have two dozen forms shoved at you to sign. I'll try to make this as clear as possible, and missnic can whack my knuckles (or whatever) with a ruler if I make an error.
/puts on professor type tweed jacket and glasses/
There are two kinds of oayments you will make: now payments, which you say total $1500+ down payment, and later payments - the mortgage payments. Many, many years ago when it was obvious that real estate would continue to quickly appreciate forever with no problems, people would do anything to reduce the now payments to zero and expect the appreciation to handle the later payments. This led to the S&L debacle when real estate dropped suddenly, people were way overextended, and the S&Ls had been making unsound loans. Everyone learned a lesson, Neil Bush made a huge fortune, and we're all more conservative now.
Your credit score of 768 is very good. Regarding your question of how it could be so high, my answer is that credit scores are calculated using a mysterious formula that nobody knows for sure. You are right that the amount of available credit is a factor. However, the fact that you haven't drawn much out of them is a factor as well. Bankruptcies and a history of late payments would have dropped your score as well.
Your later payments are where things get fun. They are the sum of Principal, Interest, Tax Escrow, and Insurance. The great news is that whatever part of that is interest, is deductible from your taxes. Another neat thing is that your payments are loaded with interest up front with no principal repayment to speak of. Later down the road, you will be paying hardly any interest and almost all principal. So you get the tax breaks disproportionately now.
The Insurance is a good idea that turned into a scam. The idea is that the lender has more risk of borrower default now, when the LTV (ratio of amount of money borrowed on loan divided by the actual value of the property) ratio is high, than when it's lower, so an extra amount was tacked on to reflect the added risk. The catch is that even when your outstanding loan amount drops below the amount required to charge you the extra, THEY WON'T TELL YOU that you're no longer required to pay. So you need to track that yourself, and tell them to drop that when it's no longer required. I think that 80% LTV is the threshold.
Tax Escrow is simple. You need to pay property taxes on your home. The mortgage company simply takes the amount you will owe, divides it by 12, and tacks that onto your bill. Come tax time, they pay for you. They get the use of your money during the year, you get one less hassle. Works for me.
Hope this helps.
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01-28-2005, 07:08 AM
but definitely thank you.
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