Only a small part of your mortgage payment each month pays the mortgage’s principal balance down. The rest of your payment covers the remaining parts of your mortgage payment. This includes the interest, real estate taxes, homeowner’s insurance, and mortgage insurance. What if you want to pay the principal balance down faster? Do extra principal payments actually help?

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Keep reading to find out the truth about extra principal payments.

What Happens When you Pay Extra Principal on Your Mortgage?

Paying extra towards your mortgage’s principal has a direct effect on the amount of interest you pay. Your amortization schedule shows that your initial mortgage payments are interest heavy. In other words, you don’t pay much of the principal down for the first few years. Instead, your payments cover the interest for borrowing the money.

Making extra principal payments right away can knock your principal down faster. This helps cut time off your loan’s term and interest off the total amount that you pay. The extra money paid goes to the loan’s balance. This helps decrease the balance faster than if you followed the amortization schedule.

What are the Benefits of Paying Extra Principal on Your Mortgage?

You realize two main benefits with extra mortgage payments. You pay less interest and shorten the loan’s term.

Your interest is calculated based on the outstanding principal balance. Making extra payments toward the principal decreases the amount of interest paid over the life of the loan. As you continue to pay the balance down, the amount of interest owed decreases. This can save you thousands of dollars with consistent extra principal payments.

As you pay the principal balance down, the time it takes to pay the loan off in full decreases. With less money outstanding, your regular payments pay the principal down even faster. If you start making extra payments early in the loan’s term, it’s possible to knock several years off a loan’s term. This also helps build up equity in the home faster.

What are the Downsides of Paying Extra Principal on Your Mortgage?

There’s one major downside to paying extra towards your mortgage’s principal – the opportunity cost of the money you invest. If you don’t have an emergency fund set up or have retirement savings, start there first.

Once you pay money towards your mortgage, the money remains tied up in the home until you sell the home or refinance the mortgage. If you don’t have money in an emergency savings account (at least 3 to 6 months’ of expenses) or have retirement savings, you could put yourself in a financial bind tying the money up into your home.

Do Large Principal Payments Reduce Your Monthly Payments?

Large principal payments don’t change your monthly payment. Instead, as we discussed above, they reduce the time it takes to pay off your mortgage. You will reduce the loan’s term, but the payments remain the same.

For example, if your required mortgage payment according to your mortgage documents is $450 per month, and you pay $1,000 one month, you still owe $450 every month until the loan is paid in full. You can knock as much time as possible off the mortgage term, but the payments remain the same.

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How Much Time Does an Extra Mortgage Payment Take Off?

The time your extra payments knock off your mortgage depend on several factors:

– When you start making the extra payments

– How often you make the extra payments

– The interest rate on the loan

– The loan’s original term

You can use an online mortgage calculator to determine how much time you’ll knock off your mortgage. Enter an estimate of the amount of the extra payments you’ll make to get a good idea. The key is making consistent payments and starting them as early as possible. As we stated above, your initial mortgage payments are interest-based. If you hit the principal early on in the loan’s term, you knock the balance down right away. This can result in less interest owed over the life of the loan and more time knocked off the term.

Does Paying an Extra $100 a Month Make a Difference?

Even though $100 doesn’t seem like much, it can knock several years off your mortgage if you pay it every month. For example, on a $200,000 loan with a 30-year term and 5% interest rate, you could knock your term down to 24 years and 9 months rather than 30 years. You would also save $37,068 in interest over the life of the loan with consistent payments.

So while that $100 doesn’t seem like much, if you start right away, it adds up. Just in the first year alone, you’ll pay an extra $1,200 toward the loan’s principal. Over the course of 20 years, you knock the principal down $20,000, which means $20,000 that you don’t pay as much interest on.

Can You Pay a 30 Year Mortgage off in 15 Years?

It is possible to pay a 30-year loan off in 15 years without refinancing. If you decide you want to be mortgage free in 15 years, use an online mortgage calculator to determine the payments you need to make. Use your current interest rate and outstanding loan balance to get your answer.

If you take the 30-year term but make larger payments, you get the benefit of being mortgage free sooner. But if you run into trouble (lose your job, get sick), you don’t have to worry about affording the higher payment. You can also jump back to the minimum 30-year payment in order to stay in good terms on your loan.

Paying extra money towards the principal can help you in many ways. Make sure you set yourself financially in other areas of your life before investing more money in your home. But once you are financially secure, making those extra payments can save you thousands of dollars over the life of the loan.

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Police officers put their lives at risk for the greater good of the community. They deserve to be able to buy a home in the community that they serve.  Many government and HUD programs make it possible for police officers to get the financial assistance that they need.

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The Available Grants

• Golden State Finance Authority Down Payment Assistance – This program offers police officers in California a 5% down payment grant. Police officers must secure FHA financing in order to be eligible for the grant.
• Washington DC First Responder Program – Police officers can receive up to $10,000 in down payment assistance. You must have a five-year service obligation and live in the property as your primary residence for five years.
• Georgia Dream Program – Eligible first responders may receive up to $5,000 for a down payment with the possibility of an additional $2,500.
• Home in 5 Advantage Program – Eligible first responders can receive up to 4% of the purchase price of a home as down payment assistance

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HUD Good Neighbor Program

The HUD Good Neighbor Program is for anyone that serves the community and purchases a HUD-owned home. HUD designates certain homes for this program periodically. The homes are located in areas that need stimulation and could use the positive influence of our community providers.

First responders that purchase a Good Neighbor Home get a 50% discount on the home, but they must meet certain criteria. First, you must live in the home as your primary residence for 3 years. During that time, the 50% discounted portion of the home sits in a silent second mortgage. You don’t make any payments on it and it doesn’t accrue interest. At the end of the 3 years, HUD forgives the second loan and you are free to do with the home as you wish, including sell it.

Each state has its own down payment assistance programs for first responders as well. Check with your state and local government to see what options may be available to you.

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You finally hear the words you’ve always wanted ‘you have final underwriting approval.’ Many people breathe a sigh of relief at this point. But it may be a bit premature. While it does mean that you tackled many mountains, it’s not the end of the road just yet. The final underwriting approval is just another step in the underwriting/approval process.

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So what happens now and what exactly does it mean? We help you understand the terms below.

The Definition of Final Underwriting Approval

Final underwriting approval means the underwriter completed the underwriting process on your loan and you passed. The underwriter is the person that evaluates all of your documents for the loan. This includes your pay stubs, W-2s, tax returns, asset statements, employment documents, appraisal, and credit report.

The underwriter goes through a series of steps to get to this point. Originally, the underwriter pre-approves you for the loan. He or she does this by giving your qualifying documents a cursory glance. Upon acceptance of the pre-approval, the underwriter takes a deep dive into your qualifying documents. This is when you may receive an ‘approval with conditions.’ The lender may need further documentation to render a decision on your loan.

Once you supply all of the necessary documents, the underwriter can give you final approval. You may also hear them say that you are ‘clear to close.’

What Happens After Final Underwriting Approval?

Many homebuyers assume they are ‘in the clear’ when they get final approval, but don’t act too fast. You still have a few steps to get through. The lender still needs to do a final verification of your employment and your credit.

If you changed anything in between the time you submitted your documents and the closing, this is when the lender will figure it out. For example, if you went out and bought a ton of furniture and charged it – the lender will see it on your credit report. If you changed jobs, the lender will find out when they verify your employment before the closing.

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It’s important to keep everything status quo after you apply for a mortgage. If you do change anything, let the lender know as quickly as possible. If the lender finds out about a major change during the final steps after approval, you may lose your loan approval.

After Passing the Final Verifications

Once you pass the final verifications of your credit and employment, the lender must send you a Closing Disclosure. This document is similar to the Loan Estimate you received at the start of the loan process. The Closing Disclosure should be updated to reflect the costs you will have at the closing.

The lender must send you the Closing Disclosure at least three business days before the closing. This gives you enough time to compare the Loan Estimate and Closing Disclosure. Look closely at all aspects of the documents, comparing the fees and even the monthly payment side-by-side.

If anything changed, such as the interest rate, points, or lender fees, ask for clarification. If something doesn’t seem right about the cash to close the loan, ask the loan officer. This is your time to ask questions, have details fixed, and make sure there aren’t any surprises at the closing table.

The Final Approval

Your true final approval doesn’t occur until you sign the documents and money exchanges hands. Up until that point, anything can change. That’s why it’s so important to keep everything as stable as you can. Life happens and lenders understand that. But you must keep lenders informed of the changes in order to ensure that you get through the closing with smooth sailing.

Getting through underwriting can seem tricky, but with the right loan officer by your side, it’s possible. Make sure to stay in close contact with your lender throughout the process so that you know where your loan stands. Keep the lender informed of any changes you make and ask the same of them so that you are both on the same page. This allows you to get to the closing table with ease.

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If you live in the Southeast area of Texas and can’t afford a down payment or closing costs, the SETH 5 Star Texas Advantage Program may be of assistance. This program can help you afford the loan, enabling you to become a homeowner.

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The Requirements of the SETH 5 Star Texas Advantage Program

Qualifying for the SETH 5 Star program is simple:

• You need at least a 640 credit score – A 640 credit score is considered a ‘fair’ credit score, which means you don’t need perfect credit to qualify
• You don’t have to be a first-time homebuyer – This means that you can even own other properties and use the SETH 5 Star program
• You can purchase a single-family home, condo, townhome, PUD or duplex with the program – If you want to buy a manufactured home, you’ll need a minimum credit score of 680
• The home must be located within Texas with a few exceptions – the home cannot be within the limits of El Paso, Grand Prairie, or Travis County
• Your maximum total debt ratio cannot exceed 45% – This means your debts that include the new mortgage payment plus any existing debts cannot take up more than 45% of your gross monthly income
• The home must be your primary residence – You must live in the home full-time in order to use the SETH program.

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The Maximum Loan Limit

You can secure a government-backed or conventional loan with the SETH 5 Star Program. If you secure a government-backed loan, such as an FHA, VA, or USDA loan, you can borrow between $294,515 – $362,250. If you qualify for a conventional loan, you can borrow up to the full conventional loan maximum of $484,350.

What is the SETH Program?

So how does the SETH program work?

It’s a second mortgage program that provides you with up to 4% – 5% of the loan amount to cover the down payment and closing costs. The second mortgage program doesn’t work like your typical second mortgage, though. You aren’t required to make payments on this loan.

If you secure a government-backed loan, a prorated amount of the loan is forgiven every month that you own the loan until the full amount is forgiven in 3 years. If you secure conventional financing, the SETH funds are a grant that doesn’t require repayment.

The SETH program helps borrowers purchase a home without requiring money out of their own pocket if your total income is less than the median income for your area. You don’t need a minimum investment and there is no required amount of funds recapture.

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Do you live in Orange County, Florida? If so, you are in luck because there is an Orange County Down Payment Assistance Program! This program helps first-time homebuyers buy a new home. The money from the program helps you come up with the necessary funds for your down payment and/or closing costs on an FHA loan.

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What Assistance Can You Receive?

The assistance is in the form of a loan. It’s not a 30-year loan like most mortgage programs, though; it’s a 10-year loan. The difference is it’s a deferred loan. You don’t have to make payments on the loan until one of the following events occur:

• You sell the home
• You rent out the home
• You refinance the original loan
• You no longer use the home as your primary residence

How to Qualify for the Orange County Down Payment Assistance Program

Not just any borrower qualifies for the Orange County Down Payment Assistance Program. You must meet the following requirements to qualify:

• You must be a first-time homebuyer (You can’t have been a homeowner for the last 3 years)
• You must be a legal US resident
• You must be a resident of Orange County, Osceola County, Seminole County, or Lake County
• You must have at least a 640 credit score
• You must have at least 1.75% of the home’s price to contribute (at least $1,000)
• Your income must be within the program’s guidelines

The Orange County Down Payment Assistance Program classifies you based on your income. You can be:

• Very low income
• Low income
• Moderate income

You can see where you stand with your income on this chart.

You may be able to borrow between $10,000 and $30,000 for your down payment and closing costs. In order to qualify, you must be able to qualify for a first mortgage. You must also take the homebuyer’s education course required by the program. The maximum sales price of the home is $214,000 in order to qualify for the program.

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Eligible Properties

First, the only properties eligible for the program are owner-occupied properties. In other words, you cannot own any other properties and you must live in the property the program helps you purchase. You can purchase any of the following types of properties:

• Single-family
• Townhouse
• Modular home
• Condominium

The only type of home that isn’t eligible is the mobile home.

Applying for the Orange County Down Payment Assistance Program

If you think that you qualify for the Orange County Down Payment Assistance Program, you can apply with the following steps:

• Take the appropriate homebuyer’s education course
• Find financing for your first mortgage and obtain a pre-approval
• Find a home that fits within your pre-approval and the program’s maximum $214,000 purchase price
• Let the lender know of your intent to use the Orange County Down Payment Assistance Program so they can send your loan package to the Housing and Community Development Division

If you qualify for the Orange County Down Payment Assistance Program, you can get the help you need to put money down on a home and cover the closing costs. The closing costs alone can be as much as 5% of a home’s price, which can be hard to afford. Use this program to your advantage and buy the home you’ve always wanted.

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If you live in Maricopa County and are a low or moderate-income family, you may qualify for the Maricopa County Home in Five Advantage Program.

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Even though the name is called ‘Home in Five’ the program actually provides you with up to 7% assistance to help you with your down payment or closing costs on a home. Keep reading to learn how the program works.

What is the Home in Five Advantage Program?

The Phoenix and Maricopa County IDES run the Home in Five Advantage Program. They created it in an effort to rebuild areas affected by foreclosures. The program helps to rebuild areas by making homeownership possible for low to moderate income borrowers.

Qualifying for the Home in Five Advantage Program

Just how do you qualify for the Home in Five Advantage Program? The following qualifications are required:

• You need at least a credit score of 640
• You must have a maximum total debt ratio of 45% (this includes all debts including housing)
• You must live in the property as your primary residence (you have up to 60 days after closing)
• You must attend homebuyer counseling
• You must not make more than $99,169 per year

The Eligible Properties

In order to qualify for the program, you must purchase an eligible property in Maricopa County. The eligible properties include:

• New homes in Maricopa County
• Existing homes in Maricopa County
• Single-family, condominium, or townhomes in Maricopa County

You don’t have to worry about a purchase price maximum as there isn’t one for this program. You just have to find an eligible property within the county and live in it as your primary residence.

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Additional Assistance

Certain borrowers may receive up to an additional 1% in assistance. These individuals are those that serve the community including:

• Teachers teaching grades K-12
• First responders
• Military veterans
• Current military personnel
• Individuals that make up to $34,550 per year

How it Works

The down payment assistance is in the form of a 2^nd mortgage. You’ll receive a 3-year second mortgage with a 0% interest rate. The amount you receive depends on your qualifications and the amount that you need, but it’s typically between 3% and 5% of the purchase price.

The second mortgage gets ‘forgiven’ over a period of three years. It’s only forgiven in you meet the qualifications of living in the home full-time, though. The only way you would have to pay off any of the loan is if you pay off your first mortgage within three years of moving into the home. If you keep the first mortgage for at least 3 years, 100% of the second mortgage is forgiven. This means you don’t pay it back. If you do move out of the home or refinance the first mortgage within the first three years, you will have to pay the 2^nd mortgage balance in full.

The funds from the second mortgage can cover 100% of the necessary funds to put down on a loan and/or pay the closing costs. But, as the borrower, you cannot receive any cash in hand. The only money you can receive is funds that reimburse you for any earnest money, taxes, interest, or prepaid funds that you paid out of your own funds.

The Maricopa County Home in Five Advantage Program makes it easier for you to become a homeowner. It also helps revitalize areas of Arizona that may have been hit hard by foreclosures. It’s a win-win for borrowers and the community, giving everyone a positive place to live.

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