PITI Mortgage Payment

Principal & Interest	Mortgage Insurance	Home Insurance	Property Tax	Total Payment
$1,362.80	$204.65	Annual Home Insurance Premium / 12 Months	Annual Property Taxes / 12 Months	$1,567.45 Monthly Taxes and Insurance

New home buyers, and especially first time homebuyers will often be unpleasantly surprised when their lender discloses their total PITI mortgage payment.  To eliminate these surprises it is important to note what may be included in your total mortgage payment.

Your monthly mortgage payment typically is made up of four components: principal, interest, taxes, and insurance, together known as PITI. The principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. The interest is the fee charged for borrowing money. You can determine the amount of principal and interest by using our Virtual Loan Shopper.

Taxes refer to property taxes your community levies which are generally based on a percentage of the value of your home. The property seller should be able to provide you with the current tax assessments.  However, the property may be re-assessed based upon the new sales price of the home.  Ask your real estate professional to determine the estimated taxes based upon the sales price and current property tax rates. The lender usually collects 1/12th of the yearly property tax bill each month. The lender collects taxes in advance and places the money in an escrow fund.

Lenders won't let you close on your home loan if you don't have hazard insurance to cover your home and your personal property against losses from fire, theft, bad weather and other causes. The insurance amount is collected and paid much like the taxes. Each month 1/12th of the insurance bill is collected and stored in an escrow account until the bill is due. Traditionally, hazard insurance has been an after thought for most home buyers.  However, the hazard insurance premium can create a budgetary surprise, or even cause disqualification for your mortgage loan.  It is not uncommon for a home buyer to receive an insurance quote significantly higher than expected. Notwithstanding the budgetary issues, this increased premium cost can increase your debt to income ratio causing your loan to be denied.  It is recommended that the homebuyer get estimate for the area in which they are relocating.  Many insurance agents will provide a free estimate based upon the area and home value range. 

Mortgage insurance is another unexpect surprise for many new home buyers.  Mortgage insurance is placed on most mortgages that exceed an 80% loan to value.  As illustrated above, this expense can significantly increase the monthly cost of your home ownership. There are loan programs that allow for higher loan to values without the required mortgage insurance.  VA loans, and RD loans are the most notable examples.  Additionally, many lenders will offer no MI loan products.  However, you must take into consideration the higher interest rate you will pay for this privilege.  Mortgage insurance may be tax deductable and will typically fall off once the loan balance drops below 80% loan to value.  If you choose a higher interest rate to avoid the MI you may need to incur the expense of a refinance to lower this higher interest rate.

Flood insurance and Homeowners Association Dues are often overlooked until just days before your closing.  These two obscure little expenses have caused more last minute loan denials than any other issue.  If these fees are applicable to the home you are buying they must be accounted for in the borrowers debt to income ratio. Ask the home seller if HOA dues apply to property, and ask your insurance agent early in the process to run a flood certification on the property.  These simple little practices will eliminate potential disasterous last minute surprises!