North Dighton Home Loans consist of four parts: the principal, insurance, taxes and interest, or PITI. It is the main part of the formula used by mortgage lenders to calculate a homeowner’s affordability ratio, but many disregard it when determining how much home they can afford. Below you will find some other information on the true cost of a home mortgage.
What Exactly is PITI?
Principal: The amount you must repay
Insurance: Coverage which will replace the loan’s value in case of flood, fire, earthquake or other disaster
Taxes: assessments collected by governments to pay for services
Interest: Costs charged by mortgage lenders to use their money during the loan term
Escrow Explained
Insurance fees and property taxes are paid each year. In many cases, mortgage lenders charge a certain amount each month to cover those expenses. Payments for North Dighton Home Loans typically contain funds for insurance, real estate taxes, and PMI, or private mortgage insurance. The portion of your monthly payment held in escrow can decrease or increase, depending on changes in your insurance and tax assessments. If your mortgage has no escrow account, you are liable for payment and documentation of insurance and taxes.
Property Taxes
Cities and counties often tax real estate to pay for government services such as police, fire, schools and road-building. The yearly tax is part of your property’s appraised value. To find your local tax percentage, contact officials in your community or county. Many of these taxes are deductible on yearly returns.
Hazard Insurance
Depending on where you live, you may have to get hazard coverage for your home. This insurance protects your and your lender’s interests in case of a disaster. Annual premiums vary depending on your location, and in most cases you must give proof of coverage before settlement or closing.
Private Mortgage Insurance
There are other costs tied into an escrow payment, such as PMI. This is default insurance required on all standard mortgages with a 20% or lower down payment. PMI helps the lender recoup part of their losses if a homeowner defaults. If you need to have PMI, the annual premium for the first year is included in closing costs, while later premiums are included in your monthly payment and put into your escrow account until payment is due.
