In today's video I explain what the main parts of a mortgage note are and give some tips to make sure you get the right mortgage!
We go over all of the terminology that first time home buyers find confusing, and I make a very useful comparison to help you understand how mortgage notes are different from other loans!
Watch on YouTube: https://youtu.be/zAvptoG9hsw
By the end of this video, you're going to understand what a mortgage note looks like. It's probably going to be a little different than what you were thinking. And I think that because when people call and they've gone online and tried to estimate the payment, most of the time they're drastically incorrect. We're going to talk about what a note contains, how that looks like and what you can expect. As usual, I'm promising you all the scoop, so let's go ahead and dive in. Welcome to your one stop shop for anything and everything mortgage education. I drop new videos every Tuesday as well as every Saturday.
I bet you're wondering why you should even hang out with me today and listen to this video or watch the video actually. Well, I have just a little bit of experience when it comes to mortgages. I live and breathe mortgages. I have been a mortgage loan officer for 17 years. I've been recognized in the top 1% in the nation by Mortgage Executive Magazine for seven years in a row. I've been recognized in the Scotsman Guide for Top Originators. I even wrote the book "Mortgage Peace".
Five. One, two, three, four, five things we're gonna cover today. It's going to be, how does a mortgage payment compare to an auto loan or an auto payment? Sounds weird, I know, but it'll make sense shortly.
Number two, what is P&I? What? Right, we'll get into that too.
Number three, what is escrow?
Number four, what is PITI? You're like, why are you talking all this foreign language to me? But bear with me.
And number five is what's a great tip to prepare for the best mortgage note for you and what your mortgage payment or mortgage note should be. Those are the five things we're gonna cover today. So let's go ahead and dive in.
Number one, you're probably like what in the world are you talking about? I like to use this comparison to an auto payment because so many of us have financed automobiles. Let's say that you purchase a car and you finance $20,000 and you know it's over five years and you know what your interest rate is and they give you your payment. Boom, done. Simple, right? Well, a mortgage note is very different than that because, yes, it's got that same basis, right? Or the same validation. But on top of that, you have other things that are typically added into your mortgage payment.
There are some exceptions, so I'm going to talk about the majority rule here. You're going to have that payment just like we talked about like your auto, but you know on your auto you have to have insurance, right? Of course. But that's paid separately. Well with your mortgage, it is held separately but paid and considered in that same note. So that's part of the payment. It's not just that principle and interest like an auto loan, there are other pieces and parts. The big term for that is escrow and we're going to get to that in a second.
The second thing I want to talk about is what is principle and interest? Well, I'm sorry, what is P&I? P, principle, and I, Interest, principle and interest. We talked about the auto loan. That is a principle and interest payment. Your mortgage does have a principal and interest component, but there's more that we're adding on top of that foundation.
Number three, what is escrow? An escrow is a non interest bearing account held by a lender to contain items such as home insurance, property taxes, mortgage insurance flood insurance, hazard insurance, earthquake insurance, like whatever those things that might apply in your area.
So let's say if you're P&I, remember principle interest, of that mortgage is 800 bucks and let's say that escrow is 200, it's probably going to be more than that, but just to keep math simple this morning, then you've got your 800 P&I, you've got your 200 for escrow, and guess what?
That leads me right perfectly to slide into number four which is what is PITI? Principle, interest, taxes, insurance. If you're not a lender, you're probably never going to use this term except for when you're buying a home or trying to qualify for a refinance, things like that. In the lender world we say PITI, principal, interest, taxes, insurance. The principle and interest foundation, just like the auto loan, the escrow, which is comprised of the taxes and insurance then equals the PITI.
Now we're going to number five. Told you this one's gonna be really quick. Number five, what's a good tip to prepare for your mortgage note? I'm going to give you two tips actually. Number one, if you're renting and whatever your rent is, if it's really, really comfortable for you, then use that as a good reference point to determine your goal for monthly payment.
If you have not rented at all and you're thinking that you want to buy a home and that you could easily afford, I have no idea, I'm gonna make it up, 1,000 bucks a month, before you dive into that, maybe take 1,000 bucks a month and put it away on the first of the month for several months and see how that feels in your budget and if you can still live comfortably. That's another tip to know a good idea of what your payments should be.
And the third and final tip for today is to take percentages off your income. I would say, take between 28 and 33% off your income before your taxes come out, and that's a good reference point of a safe area that your house note might want to fall within. Those are my five tips for today, but really eight, because I gave three bonuses, and I hope this is super, super helpful in setting you up for mortgage success and mortgage peace.
Type peace, P-E-A-C-E in the comments below if you do feel more peaceful about understanding what goes into a mortgage payment and you feel better prepared for home ownership.
I really hope you enjoyed the video today. Please, don't forget to subscribe to the channel, hit the bell to be notified and I'm gonna drop some other links, other videos, hope that you find helpful. I'd love to connect as well. And then my Insta is _therealstephanieweeks. And as always, I welcome direct messages as well.
Every year an average of 21 million people apply for mortgages in the US, and only around 7 million close. I'm on a mission is to change that by spreading mortgage education. Sign up for my newsletter to be a part of my Mortgage Peace Movement!