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Total Monthly Housing Expense When You Buy a Home

Total Monthly Housing Expense When You Buy 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 homeowners association (HOA) fees and mortgage insurance.  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
  • Mortgage Payment
    • 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
    Property Tax
    • 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
    Homeowners Insurance (also known as Hazard Insurance)
    • 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
    Home Owner Association (HOA) Fees
    • Also known as HOA fees, most condominium complexes and some housing projects charge property owners monthly fees for the maintenance and upkeep of the project
    • Some HOA fees may also include homeowners insurance as well
    • HOA fees vary depending on many factors including the size and age of the complex and value of the properties. HOA fees can run from less than $100 per month to over $1,000 per month
    Private Mortgage Insurance (PMI)
    • Depending on your loan type, the size of your loan and the amount of your loan relative to the value of your property (Loan-to-Value or LTV ratio), you may be required to pay private mortgage insurance, or PMI
    • PMI is typically required 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
    FHA Mortgage Insurance Premium (MIP)
    • If you obtain an FHA mortgage you are required to pay an upfront and ongoing Mortgage Insurance Premium (MIP) which is an additional cost on top of the monthly mortgage payment
    • The monthly FHA MIP fee depends on your mortgage amount, loan-to-value (LTV) ratio and mortgage term
  • Watch our total monthly housing expense instructional video to learn more about the total cost of owning a home.

  • FREEandCLEAR Mortgage Instructional Video

    Total Monthly Housing Expense Instructional Video

  • 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.

    • $1800
      $550 Principal
      $1,250 Interest
    • $400
      borderProperty Tax
    • $40
    • $100
    • $2,340

    Monthly Mortgage Payment

    Total Monthly Housing Expense

  • Rate Details*
    Loan Program:  
    Monthly Payment:  
    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Total Lender Fees:  
    Loan type:  
    Property Value:  
    Loan to Value:  
    Credit Rating:  
    Date Submitted:  
    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
    Current Mortgage Rates as of December 11, 2018
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
  • Sources

    Monthly Housing Expense:

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry


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