How Much is Total Monthly Housing Expense for a Home
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How Much is Total Monthly Housing Expense for a Home
- What is Total Monthly Housing Expense?
It is very important to realize that your mortgage payment is only one component of the numerous expenses that you are responsible for when you own a home and have a mortgage. Focusing on your total monthly housing expenses, and not just your loan payment, ensures that you can afford your mortgage and home and positions you to properly manage your monthly budget. The better you understand total monthly housing expense, the better you can plan for the true costs of owning a home and having a mortgage.
Total monthly housing expense includes your monthly mortgage payment plus additional expenses such as property tax and homeowners insurance as well as other potentially applicable costs such as mortgage insurance, flood insurance, homeowners association (HOA) or co-op fees, special tax assessments, ground rent and payments on any second mortgages, home equity loans or lines of credit (HELOC) or PACE loans. Your mortgage payment (principal and interest) plus property taxes and homeowners insurance is often referred to as principal, interest, taxes and insurance, or P-I-T-I for short.
The tax and insurance cost components can add up to hundreds of dollars a month and thousands of dollars a year, reinforcing why it is important to think beyond your monthly principal and interest payments to understand total monthly housing expense. Additionally, you should factor in the costs for property maintenance and upkeep, including potential repairs. In short, affording a home involves much more than your monthly mortgage payment.
A breakdown and explanation of the components of total monthly housing expense are outlined in the table below.
- Total Monthly Housing Expense Components
- Represents the monthly cost of borrowing money from a lender and is typically the largest component of monthly housing expense
- Mortgage payments are typically comprised of principal and interest components
- Monthly payments for amortizing mortgages, or mortgages where the loan balance is paid down over time, have both a principal and interest component
- The component of your mortgage payment that goes to pay down your loan amount
- The component of your mortgage payment that represents the cost of borrowing money from a lender. Interest payments do not reduce your loan amount
- Most counties charge a tax when you own a property
- Property taxes vary by county and can range from 0.5% to 3.0% of the value of the property
- So if you buy a home for $300,000 and the property tax rate in your county is 1%, then your annual property tax bill is $3,000, or $250 per month (although property taxes are usually billed on a semi-annual or yearly basis)
- Some, typically newer, housing projects may also include a Special Property Assessment Tax to pay new infrastructure like roads and schools
known as Hazard
- This is insurance in case something bad happens to your house such as a fire
- Insurance premiums vary depending on the value of your property and where it is located and the type of policy you purchase in terms of coverage level and deductible
- Homeowners insurance can run from several hundred to several thousand dollars per year
(HOA) or Co-Op Fees
- Most condominium projects and co-ops charge property owners monthly fees for the maintenance and upkeep of the project
- Some HOA and co-op fees may also include homeowners insurance as well
- HOA and co-op fees vary depending on many factors including the size and age of the complex and value of the properties. These fees can run from less than $100 per month to over $1,000 per month
- Depending on your loan program, the size of your loan and the amount of your mortgage relative to the value of your property (loan-to-value ratio or LTV ratio), you may be required to pay mortgage insurance
- Private mortgage insurance (PMI) is typically required on a conventional mortgage when the LTV ratio exceeds 80% (so the amount of your loan exceeds 80% of the value of your house)
- PMI typically requires the borrower pay an ongoing monthly fee. PMI fees vary depending on many factors including LTV ratio, credit score, mortgage term, mortgage amount and mortgage type and can range from .20% to 1.65% of the mortgage balance
- If you have an FHA, USDA or HUD Section 184 mortgage you are also required to pay a monthly mortgage insurance fee
- The monthly insurance fee for these mortgages depends on the program, mortgage amount, LTV ratio and loan term
- If the property is located in a flood plain you are required to purchase flood insurance to qualify for the mortgage
- The monthly flood insurance fee is included in your total housing expense
Payments on Other Loans Secured by the Property
- The monthly payments on any loans secured by the property including a second mortgage, home equity loan, line of credit (HELOC) or PACE loan are included in total monthly housing expense
- If you are required to pay rent for the ground a property, such as a manufactured home, is located on, this extra payment counts as monthly housing expense
Special Assessment Tax
- In some cases you are required to pay a special assessment in addition to your regular property taxes to pay for infrastructure improvements such as schools and roads
- These additional payment are included in total housing expense
- Example: Total Monthly Housing Expense
The graph below demonstrates how various cost components add up to total monthly housing expense. The chart represents total housing expense for a borrower with a $380,000 mortgage with an interest rate of 4.0%. In this example, the borrower is required to pay property tax, homeowners insurance and a homeowners association (HOA) fee of $100 per month but is not required to pay other potentially applicable costs such as mortgage insurance.
Housing expenses vary depending on many factors including your mortgage amount and property value. The higher your loan amount and more expensive the home, the higher your total monthly housing expense. This is because your monthly payment is higher with a larger mortgage and property tax and insurance are based primarily on property value. As the chart demonstrates, your mortgage payment is only one component of total monthly housing expense and you need to be able to afford hundreds or possibly thousands of dollars in additional expenses when you own a home.
Monthly Mortgage Payment
Total Monthly Housing Expense
Watch our total monthly housing expense instructional video to learn more about the total cost of owning a home.
Total Monthly Housing Expense Instructional Video
"B3-6-03, Monthly Housing Expense for the Subject Property." Selling Guide: Fannie Mae Single Family. Fannie Mae, February 5 2020. Web.
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