Understanding Your Monthly Payments
The monthly payment on your new home will include the principal and interest on the loan you receive from your mortgage company. In addition, you will be responsible for paying annual property taxes and homeowner’s insurance. If you choose, you can have your taxes and insurance added to your monthly payment (most loans require this), or you can pay them on an annual basis.
Taxes and insurance will vary greatly depending on the area in which you live and the features of your home. (Generally, on a $100,000 to $200,000 home, your taxes will range from $2,500 to $5,000 annually and your homeowner’s insurance will range from $300 to $800 annually.)
Once you have found the home you wish to purchase, your lender will complete a Lending Disclosure for you that will better approximate your closing costs and estimated monthly. Using the acronym PITI can help you conceptualize your costs.
Principal: The money used to pay down the balance of the loan.
Interest: The charge you pay the lender for the service of borrowing.
Taxes: The amount you pay in property taxes will vary based on your area.
Insurance: Property insurance and mortgage insurance.