The four parts of PITI
Principal pays down your balance. Interest is the lender's charge. Together they're the fixed part of your payment on a fixed-rate loan — they will not change for thirty years.
Taxes and insurance are collected monthly into an escrow account and paid on your behalf. These are the parts that change. An escrow analysis runs annually, and if taxes or insurance rose, your payment rises with them. Budget for a 3% to 8% escrow increase in a typical year.
Mortgage insurance
On conventional loans with less than 20% down, private mortgage insurance is priced on your credit score and loan-to-value. It typically runs 0.2% to 1.5% of the loan amount per year and cancels automatically at 78% LTV (loan-to-value — how much you are borrowing compared to what the home is worth — put 10% down and your loan-to-value is 90%) — or on request at 80%.
FHA (Federal Housing Administration loan — a government-backed loan built for buyers with lower credit scores or smaller down payments) is different: the annual mortgage insurance premium usually stays for the life of the loan when you put less than 10% down, plus an upfront premium financed into the balance. That structural difference is the single biggest reason to compare FHA against a low-down-payment conventional option.
HOA dues and special assessments
HOA (homeowners association — a neighborhood or condo group that charges a monthly or yearly fee and sets community rules; lenders count that fee in your payment) dues are fully counted in your DTI (debt-to-income ratio — how a lender measures your monthly bills as a percentage of your monthly income before taxes) and can range from $25 a month for a simple neighborhood to $600 or more for a condo with amenities. Read the HOA's reserve study before you buy: an underfunded association is a future special assessment, and special assessments are not optional.
Utilities and maintenance — the renter-to-owner gap
Owners pay for what landlords used to absorb: water and sewer, trash, lawn care, pest control, and every repair. The common planning rule is 1% to 2% of the home's value annually for maintenance — on a $400,000 home, that's $333 to $667 a month set aside, even in years when nothing breaks.
Square footage also changes utility costs. Moving from an 800-square-foot apartment to a 2,000-square-foot house typically doubles heating and cooling.
A realistic example
On a $400,000 home with 5% down at a 6.5% rate:
- Principal and interest: roughly $2,400
- Property taxes at 1.1%: roughly $367
- Homeowners insurance: roughly $150
- PMI (private mortgage insurance — an extra monthly fee on conventional loans when you put down less than 20%; it protects the lender, not you, and can usually be removed later) at 0.5%: roughly $158
- Total payment: roughly $3,075
- Maintenance reserve: $333–$667
- Utilities increase over renting: $100–$250
The mortgage quote says $2,400. The real cost of ownership is closer to $3,600.
Frequently asked questions
Why did my mortgage payment go up if I have a fixed rate?
Your escrow portion changed. Property taxes or insurance premiums rose, and the servicer recalculated to cover them plus any shortage.
Can I pay taxes and insurance myself instead of escrowing?
Sometimes, usually with 20% or more equity and a fee. Most first-time buyers are required to escrow, and honestly it's the safer default.
How do I get rid of PMI?
On conventional, request cancellation at 80% loan-to-value based on the original value, and it terminates automatically at 78%. Appreciation-based removal via a new appraisal is also possible with most servicers.
Is a condo cheaper than a house?
The purchase price often is, but dues and special assessments frequently close the gap. Compare total monthly cost, not sticker price.
Run your numbers
Take what you just learned and apply it to your file.