When it comes to buying a home, it isn’t just the loan amount and interest rate that will impact your monthly payment. Additional items such as property insurance and taxes can increase a required monthly payment by as much as 35%. If you are planning to put down less than 20%, you’ll also want to factor in paying for mortgage insurance each month.
What goes into a mortgage payment?
The good news is that virtually every mortgage payment is made up of the same key ingredients. They are principal, interest, taxes and insurance. These four items are typically referred to as PITI – which, when spoken, sounds like “pity”.
The bad news is that certain factors of your monthly payment will not be within your control. Namely, the property taxes and property insurance. These factors can change (likely increase) over time and will usually be paid each month along with the principal and interest on your loan.
When you are shopping for a home, keep your eye on the amount of property tax required each year. Property tax amounts can vary between properties and across state, town or county lines.
Now that you are armed with a better understanding of PITI, be sure to understand the basics of a mortgage and learn about debt ratios. Once you have a handle on these three topics, you’ll be well on your way to becoming a savvy mortgage shopper and homeowner.
Looking to get your mortgage shopping started (or double check your rate and program)? Ask your Realtor for access to MortgageCS so you can shop your mortgage terms without the requirement of giving up your personal contact information (and save 90% of the time it takes to shop elsewhere!).
Related Posts in this Series
Part 1: What is a mortgage?
Part 2: What is a debt ratio?