Wrapping Up Home Buying – After the Close

Now that you’ve bought a home and moved in, you’ve got a few new financial things to keep in mind. Don’t worry, they’re nowhere near as involved as the home buying process but there are some things you need to know.

First, it’s possible that your mortgage will be sold relatively soon after you close. If your mortgage servicer changes (this does happen frequently) that means you’ll probably need to create an account with the new servicer, change any auto-payments you have set up to pay your mortgage, and make sure that the escrow accounts were transferred properly. 

You should also be on the lookout for mail sent to your new home that LOOKS official and as if it came from your mortgage company. The junk mail can be very convincing. Read everything twice before you sign up for anything and don’t be afraid to call your mortgage company to ask them if they sent it.

After you’ve owned the home for a while you’ll probably start wondering when you can stop paying the private mortgage insurance (PMI) that’s usually required if your initial down payment was less than 20% of the cost of the home. The mortgage servicer has to cancel PMI automatically when your loan value (how much you owe) reaches 78% of the value of the home. To figure out how close you are just take the balance of the mortgage (what you still owe) and divide by the value of the home (in most cases, you should use your purchase price). This is known as your “Loan to Value” ratio.

You’ve probably heard the term “equity” when people talk about home ownership. The simplest way of defining equity is the value of the home minus anything you still owe on the mortgage. 

Why does equity matter? You can borrow against your equity via a home equity loan if the need arises. If your home is worth $250,000 and you still owe $150,000 on the mortgage you have $100,000 in equity. You can usually borrow from 75% to 90% of that $100,000 via a home equity loan. 

Finally, you should be aware of the option of refinancing. If interest rates drop significantly, or your credit improves dramatically, you might qualify for a lower interest mortgage rate. Be sure to review the fees and do the math to see if it makes sense.

For more detail on each of these, read the full article here.