What PITI means — and why it matters
Your true monthly housing cost is the sum of Principal, Interest, Taxes, and Insurance — known as PITI. Many first-time buyers calculate only principal and interest and are shocked when their actual payment is 25–40% higher once property taxes and insurance are added.
Down payment and PMI
If your down payment is less than 20% of the home price, lenders require Private Mortgage Insurance (PMI) — typically 0.3%–1.5% of the loan annually. On a $360,000 loan, that's $90–$450 extra per month until your equity reaches 20%. PMI disappears automatically when your loan-to-value reaches 78%, or you can request removal at 80%.
The 30-year vs 15-year tradeoff
A 30-year mortgage has lower monthly payments but costs roughly 2× more in total interest than a 15-year mortgage on the same principal. The "right" choice depends on what you'd do with the difference: if you'd invest it in a diversified portfolio earning 7–8%, the 30-year often wins mathematically. If you'd spend it, the 15-year enforces savings.
Every extra dollar you pay above your scheduled mortgage payment goes directly to principal — meaning every dollar saves you interest for the rest of the loan term. One extra payment per year on a 30-year mortgage typically shaves 4–6 years off the term.
Frequently asked questions
What credit score do I need for a mortgage?
Conventional loans typically require 620+. FHA loans accept 580+ (with 3.5% down) or 500-579 (with 10% down). VA and USDA loans have no official minimum but most lenders want 580+. The best rates go to borrowers with 740+.
How much down payment do I need?
Conventional: 3-20% (less than 20% requires PMI). FHA: 3.5%. VA and USDA: 0% down. First-time buyer programs often offer 3% down conventional options. Putting 20%+ down avoids PMI but isn't always the best financial move if it drains your emergency fund.
What is PMI and how do I remove it?
Private Mortgage Insurance protects the lender (not you) if you default. Required on conventional loans with less than 20% down. Costs 0.3-1.5% of the loan annually. Removes automatically at 78% LTV, or you can request removal at 80%. FHA loans require PMI for the life of the loan (with some exceptions for loans originated after 2013 with 10%+ down).
Should I get a 15-year or 30-year mortgage?
30-year: lower monthly payments, more interest paid, more flexibility. 15-year: higher payments, much less interest (often 50%+ savings), builds equity faster, lower rate. A 30-year with disciplined extra payments gives you the best of both worlds — flexibility if you need it, payoff speed if you don't.
What are mortgage points and should I pay them?
One point = 1% of the loan amount, paid upfront to reduce the interest rate (typically by 0.25%). Worth it if you'll keep the loan past the break-even point (usually 5-7 years). Calculate: cost of points ÷ monthly savings = break-even in months. Don't pay points if you expect to move or refinance soon.
What is the difference between APR and interest rate on a mortgage?
Interest rate is the cost of borrowing the principal. APR includes the interest rate PLUS most closing costs (origination fees, points, mortgage insurance), expressed as an annualized rate. APR is always ≥ interest rate. Use APR to compare loans apples-to-apples.
Can I lock in my mortgage rate?
Yes — and you should. Rate locks typically last 30-90 days. If rates rise during the lock period, you keep the locked rate. If rates fall, some lenders offer 'float-down' options. Lock after you have a signed purchase agreement or 45-60 days before closing on a refinance.
Glossary of key terms
- PITI
- Principal, Interest, Taxes, Insurance — the four components of a monthly mortgage payment.
- PMI
- Private Mortgage Insurance. Required on conventional loans with less than 20% down. Protects the lender, not you.
- LTV (Loan-to-Value)
- Loan amount ÷ home value. Lower LTV = better terms. PMI required above 80% LTV.
- Amortization
- How loan payments are split between principal and interest over time. Early payments are mostly interest; late payments mostly principal.
- Escrow
- An account held by the lender to pay property taxes and insurance on your behalf. Funded monthly as part of your mortgage payment.
Common mistakes to avoid
- Calculating only principal + interest — PITI is the real monthly cost
- Putting 20% down just to avoid PMI if it drains your emergency fund
- Choosing a 30-year mortgage because the payment is lower — you'll pay 2× more in interest
- Not shopping multiple lenders — rates and fees vary 0.5%+ between lenders
- Forgetting to lock in your rate — rates can change daily, sometimes hourly
Pro tips
- Get pre-approved BEFORE house hunting — shows sellers you're serious and lets you act fast.
- Compare Loan Estimates (LEs) from at least 3 lenders on the same day — rates change daily.
- Make biweekly payments instead of monthly — adds one extra payment per year, shaves 5-7 years off a 30-year mortgage.
- Recast your mortgage after a windfall (bonus, inheritance) — lowers payment without refinancing, usually costs only $200-500.
- Avoid 'no-closing-cost' mortgages — the costs are hidden in a higher rate that costs more over the life of the loan.
Results are estimates for educational purposes only and not financial advice. Consult a licensed professional for advice specific to your situation.