Making Monthly House Payments - The Whole Picture

 Very often you will hear realtors, lenders and others talk about (PITI) to determine affordability.  They are referring to your mortgage payment, which will include Principal to pay off the loan, unless it is interest only, interest on the debt, property taxes and insurance and then very often a monthly Home Owners Association payments.   It is the total of these expenses that make up your monthly home expense.  Of course, you still must pay utilities and maintenance to see the rest of the picture.  But, it suffices to say that if you can't afford PITI, you probably do not have the income to buy the particular home.  

Usually, no more than 33% of your income should be going to make your total house payment.  Generally, lenders will not approve loans for more than 33% of your income.   You will need the other 67% to buy things like food, clothing, medical services and many other things.   We sometime hear the term being "house poor".   It means that people want to own a home so badly that they are willing to pay a large share of their monthly income for the privilege.  In the long run it may make sense.  In the short run, it could be painful.

The good news is that mortgage interest rates are so low today that owning a home can be pretty affordable for many people especially dual income couples.  The problem is often the down payment.  First time home buyers can purchase a home with as little as 3% down; but naturally the lower the down payment the higher the monthly payment.  Buying a home with less than 20% down will usually require private mortgage insurance or PMI, which will raise the payment $100 or more a month depending on the amount of the loan.  

In any case, when buying a home, you must focus on PITI plus HOA to understand the full impact of monthly payments.  Some people prefer impounds meaning that they pay the mortgage company for taxes and insurance to include it as a monthly payment.  Property taxes depending on local jurisdiction are usually due 2 to 4 times a year.  Insurance can be paid monthly, quarterly or semi-annually,  People who choose impounds sometimes just prefer to make one payment each month to cover it all.  When you do that, the lender holds the money and then pays the amounts due when they are due.   It does make it easier from a budgeting standpoint.