Question 1

How is my monthly mortgage payment calculated (PITI)?

Accepted Answer

Your monthly mortgage payment consists of four components (PITI): Principal (the loan amount you're paying down each month), Interest (the cost of borrowing from the lender), Taxes (annual property taxes divided by 12), and Insurance (homeowners insurance plus PMI if you put down less than 20%). For example, on a $400,000 loan at 7% with $4,800 annual taxes and $1,200 insurance, your PITI would be approximately $3,160/month ($2,661 principal+interest + $400 taxes + $100 insurance). Many first-time buyers underestimate the total cost by focusing only on principal and interest.

Question 2

What is PMI and how can I avoid it?

Accepted Answer

PMI (Private Mortgage Insurance) protects the lender if you default and is required when you put down less than 20% on a conventional loan. It typically costs 0.5-1.5% of the loan amount annually, adding $167-$500/month on a $400,000 loan. You can avoid PMI by: putting down 20% or more, using a piggyback loan (80-10-10 structure), choosing a VA loan (no PMI requirement), or selecting an FHA loan (though it has MIP instead). Once you reach 20% equity on a conventional loan, you can request PMI removal, potentially saving thousands annually.

Question 3

Should I choose a 15-year or 30-year mortgage?

Accepted Answer

A 30-year mortgage offers lower monthly payments ($2,661/month on $400k at 7%) but costs $558,000 in total interest over the life of the loan. A 15-year mortgage has higher payments ($3,595/month at 6.5%) but only $247,000 in total interest—saving you $311,000. Choose 30-year if you need payment flexibility, want to invest the difference elsewhere, or are stretching your budget. Choose 15-year if you can comfortably afford higher payments, want to build equity faster, and prioritize being debt-free sooner. You can also get a 30-year and make extra principal payments for flexibility.

Question 4

What are mortgage points and should I buy them?

Accepted Answer

Mortgage points (also called discount points) are prepaid interest—each point costs 1% of the loan amount and typically lowers your rate by 0.25%. On a $400,000 loan, 2 points ($8,000) might drop your rate from 7% to 6.5%, saving approximately $100/month. Your break-even point is 80 months (6.7 years). Buy points if you plan to stay 10+ years, have extra cash available, and want guaranteed savings. Skip them if you're moving within 5-7 years, need cash for emergencies or furniture, or would earn more investing that money elsewhere.

Question 5

How much are typical closing costs when buying a home?

Accepted Answer

Closing costs typically range from 2-6% of the loan amount. On a $400,000 loan, expect $8,000-$24,000 (average around $16,000). This includes: lender fees ($1,000-$3,000 for origination, underwriting, and processing), third-party costs ($1,000-$2,500 for appraisal, title insurance, and attorney fees), government fees ($100-$500 for recording and transfer taxes), and prepaids (varies for homeowners insurance, property taxes, and prepaid interest). You can negotiate some fees, shop around for services like title insurance, or choose a no-closing-cost mortgage (though you'll pay via a slightly higher interest rate).

Principal & Interest	$1263
Property Taxes	$222
Homeowners Insurance	$125
PMI (until 20% equity)	$83
TOTAL MONTHLY PAYMENT	$1693

Home Price	Down Payment	Monthly Payment	Front-End DTI	Status
$166,500	$16,650	$1,301	19.5%	✅ Comfortable
$188,700	$18,870	$1,458	21.9%	⚠️ Stretching
$222,000 ★	$22,200	$1,693	25.4%	🔶 At Limit
$244,200	$24,420	$1,850	27.7%	🔶 At Limit
$277,500	$27,750	$2,085	31.3%	❌ Over Budget

Monthly Savings	Time to Goal	Target Date	Interest Earned	Time Saved
$500/month (current)	1y 10m	Aug 2027	$1,345	-
$600/month (+$100)	1y 7m	May 2027	$1,174	3 months
$700/month (+$200)	1y 5m	Mar 2027	$1,067	5 months
$1,000/month (+$500)	1y 0m	Oct 2026	$756	10 months

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