Understanding Your Monthly Payment (PITI)
Most first-time homebuyers focus only on the loan repayment, but your actual monthly check to the bank includes four parts, commonly known as PITI:
- Principal: The money that goes towards paying down your loan balance.
- Interest: The cost of borrowing money (paid to the bank).
- Taxes: Property taxes paid to your local government (usually 1-2% of home value).
- Insurance: Homeowners insurance to protect against fire and damage.
How much house can I afford?
A common rule of thumb is the 28/36 rule. Your mortgage payment should not exceed 28% of your gross monthly income, and your total debt payments (including student loans/cars) should not exceed 36%.