Everyone is super focused on all the activities needed to get approved to buy a home, searching for a home, and taking the steps to close on a home, that many times they don’t ask some important questions about how things work with their mortgage after they close.

Very surprising that humans do not always think ahead, right?

So, let us go through some of the standard questions people have about their mortgage after they realize they have bought their home and need to start paying someone soon.

1. When do I have to make my first mortgage payment?
   • This answer can depend on what type of financing you received, just for a heads up. But to keep things simple, we are going to assume you are using a standard, secondary market mortgage (so a program like a VA loan, a FHA loan, or a Conventional Loan). With these programs, the requirement is to not have a mortgage payment due in either the month you close your purchase, or the following month. So, let us say you close on a home the 15th of December, in this scenario, you would have no mortgage due for the remainder of December (the month you close), and you would have no payment due in January (the month after you close). Due date wise, your first payment would be required to be within the 1st and 15th of February. For another example, let us say you close the 31st of June. There again, would be no payment in June (the one day of the month you own the property) or in July (the month after you close), and your first payment would start in August.
   • The mortgage program sponsors (Housing and Urban Development, Veterans Affairs, Fannie Mae, Freddie Mac) want to provide you time to save up some extra funds before your first payment is due. They are kind and lenient, despite what may people think.
   • The second part is when, during the month, is the payment due? As I alluded too above, you will traditionally be able to choose to make your payment anytime between the 1st of the month and the 15th of the month, with no late payment applied. If you make a payment on the 16th of the month or after, you traditionally will have a late fee you will be charged. So, just be smart and set up your autopay for anytime between the 1st and the 15th.
2. How do I make my payment?
   • Your mortgage servicer will be likely emailing you and mailing you your payment options. The servicer is who you will be working with after closing your mortgage and who will help you with making payments, paying your property taxes and homeowner’s insurance, etc. The servicing company could be the same company you closed your mortgage with or it could be a different company that the original mortgage company sold the servicing to, so it is best to open all mail and emails related to the mortgage. For the average person, the servicing company will be different than the company you closed the loan with.
   • When you get the payment information, you will have the choice of paying online (traditionally the easiest option, by far), mailing in your payments, and possibly paying over the phone. And normally the payment information will come shortly before or around your first payment due date. So, if you have not seen the payment information for a number of weeks after closing, do not worry.
   • If you select to make your payments online, you can set up an auto payment for the date you like (again, best to do between the 1st through the 15th), or you can just make manual payments using the online website.
3. Can I pay extra towards my mortgage? Are their any pre-payment penalties? Can I make bi-weekly payments?
   • The answers to these questions are going to vary, again, by the type of mortgage program you use to acquire the property. Commercial loans and others that are outside the traditionally discussed secondary market mortgages can have their own guidelines and may charge pre-payment penalties. But, in this conversation, we again are going to stick with the traditional FHA/VA/Conventional mortgage programs for our answers. Consult your lender if you are using programs outside of these standard options.
   • Can you pay extra payments or would their be pre-payment penalties? With the traditional mortgage options, there will not be any pre-payment penalties built into the mortgage. You can always pay larger payments to knock down the loan balance faster, or if you win the lottery the day after your first payment is due on the mortgage, you can pay the whole thing off. Not only can you pay the balance down faster than the 30-year amortized term (or whatever term you originally go with), it is highly recommended to do so in order to save yourself massive interest costs.
   • Bi-weekly payments are often asked about due to the conversation that if you do that payment set up, you technically make one extra payment a year, which can pay your mortgage off faster. Most of the time you can set up bi-weekly payments with the servicing company, but you do need to understand that you are technically paying your mortgage payment from behind, so in order to switch to bi-weekly payments, you likely have to make a lump-sum extra payment to switch to and catch up with a bi-weekly cycle. So be prepared to make some extra payments to switch to bi-weekly instead of monthly. Also, if you don’t want to go through the hassle of working with the servicer to switch to the bi-weekly payment structure, you can just divide your principle and interest payment by 12 (for the 12 monthly payments you will do a year) and add that amount to your monthly payments for the same effect. So, if your payment divided by 12 is $150, then just bump your monthly payment by $150 and you will be set.
4. Can I cancel my Mortgage Insurance down the road?
   • Mortgage insurance is one of the least favorite conversation points for people to have and they often want to get rid of their mortgage insurance as soon as possible, which makes perfect sense (if you are unsure what mortgage insurance is and what it does, see some of our other blog posts that break it down in detail). Mortgage insurance is very important and is one of the major reasons that people are allowed to only have to put a small down payment down on a home purchase, so don’t knock its value. But, there is no point in you paying it longer than you need to either. I’d think of it like taxes, however you can legally pay the least amount, do it.
   • But you need to know that a few mortgage programs may not let you get rid of your mortgage insurance after your purchase (unless you refinance to a new program down the road). Here is a quick breakdown of mortgage insurance requirements for the standard mortgage programs and scenarios:
     • Conventional mortgage programs (Freddie Mac and Fannie Mae) – standard conventional mortgages only require mortgage insurance on your purchase if you put less than 20% down. So, if you are putting a large down payment down and using a conventional loan to purchase the property, you may be able to skip mortgage insurance costs all together. If you are putting less than 20% down with this program, then you have to put mortgage insurance in place until you can prove that you have built 20% equity, or more, in the property (through a combination of paying down the mortgage, your home appreciating in value over time, and large scale updates/upgrades to the home). If you are a year or more down the road from your purchase and you believe you have built the needed 20% equity, you can call the servicing customer service team and request an appraisal be done to prove the value and remove the mortgage insurance. You do have to pay for the appraisal though, just for a heads up.
     • FHA mortgage programs – these programs are more particular on the mortgage insurance as part of the mortgage payment. FHA loans are more comfortable with risk when approving borrowers, and therefore have to have more strict mortgage insurance costs to offset the potential losses they may sustain from higher likelihood of foreclosures and shortsales. We will focus on thirty year mortgage terms with FHA in this post to keep things simple. With the 30 year payment term, if you put down less than 10% with an FHA loan, the mortgage insurance payment will stay a part of the mortgage payment for the life of the loan, regardless of how much equity you gain. If you put 10% down or more, then the mortgage insurance will stay as part of the mortgage for 11 years. The only way to remove the mortgage insurance otherwise, would be to eventually refinance to a conventional mortgage once you have enough equity (and as long as interest rates and other pieces make sense). FHA also charges an “up-front” mortgage insurance fee, which is currently 1.75% of the loan amount. That fee is rolled into the mortgage balance and paid in your principle and interest payment over time.
     • Rural Development Guaranteed mortgage program – this program is similar to FHA. To keep it simple, Rural Development charges a 1% up-front fee that is rolled into your loan amount and paid with your principle and interest payment over time, and a monthly mortgage insurance that stays on for the life of the loan. Period. No alterations. If you wish to get rid of the mortgage insurance, a refinance over to a conventional mortgage down the road is the option (or you could pay off the mortgage in full, of course).
     • VA Loans – VA, as normal, is it’s own animal. With the VA program, there is no monthly mortgage insurance like there is with each of the other programs, so you monthly mortgage payment is quite a bit lower, traditionally. But VA does charge varying degrees of up-front mortgage insurance, depending on if you were active duty, reserve, guard, etc. and if you are using your VA loan for the first time or not. If you are a disabled veteran, currently of 10% or more disability rating, you are nicely exempt from having to pay the up-front mortgage insurance fee also, and have no mortgage insurance costs, period. But, with the VA loan, outside of the original up-front fee you may or may not have to pay, you do not need to worry about mortgage insurance as part of your payment.
5. How long do I have to wait to Refinance my mortgage to a lower rate?
   • Just like the answers above, each program type will have different requirements of when you can refinance your current mortgage. These requirements are to protect the government agency if you are doing a traditional conventional, FHA, VA type program (so they don’t lose too much money buying a loan that doesn’t stay in place long), and to protect you to make sure lenders do not try to churn you into a bunch of refinances you do not need. We will use examples of a refinance where you are lowering your interest rate only, for these examples, though there are cashout refinances as options as well.
   • For a normal conventional loan, there is not specific time frames exactly, but most often you will hear that waiting six months is preferred.
   • For FHA loans, at least 210 days must have passed from the closing date of the original loan before a case number (FHA specific protocol) can be pulled to begin the refinance process. And at least 6 on time payments must have occurred.
   • For VA loans, you have to wait 210 days from your first payment date before you can close on the refinance.

As normal, there are many other questions you will likely have after you close on your home purchase (or after a refinance). These do not address everything, and Midwest Money Mentor will make another set of posts to address further questions. For now, stick this new, fancy knowledge in your brain and know you are smarter than most other people just because you read this post.

Congratulations and you are welcome.