Can you really afford a home? What a monthly payment includes.
Most first-time buyers look at a listing price and do one calculation: "What's the mortgage payment?" That number is only part of the story and in some cases, it's not even the biggest part.
Before you fall in love with a home, you need to understand what you're actually signing up to pay every month. The industry shorthand for it is PITI: Principal, Interest, Taxes, and Insurance. Here's what each one means and why it matters.
P — Principal
This is the portion of your payment that goes toward paying down what you borrowed. In the early years of a mortgage, this number is small — most of your payment goes to interest first (more on that below). Over time, the balance shifts. But don't expect to build significant equity quickly.
I — Interest
Interest is the cost of borrowing money. On a 30-year fixed mortgage, your lender calculates interest on whatever balance you still owe so in month one, you're paying interest on the full loan amount.
Here's the math reality: on a $350,000 loan at 7%, your first payment is roughly $2,328. Of that, about $2,042 goes to interest and only $286 goes to principal. That ratio gradually improves over time, but for the first several years, the majority of every payment is interest.
This is why your interest rate matters so much. A 1% difference in rate on a $350,000 loan changes your monthly payment by roughly $200 and your total interest paid over 30 years by over $70,000.
T — Taxes
Property taxes are real, ongoing, and often underestimated. They vary significantly by location — from under 0.5% of your home's value annually in some states to over 2% in others.
On a $400,000 home in a state with a 1.2% tax rate, you're looking at $4,800/year in property taxes — or $400/month added to your payment. Most lenders collect this monthly and hold it in an escrow account, paying your tax bill on your behalf when it's due.
One thing buyers miss: your property taxes are reassessed after purchase in many states. If you're buying a home that's been owned for 20 years, the previous owner may have been taxed on a much lower assessed value. Yours could be higher from day one.
I — Insurance
Two types of insurance are built into your monthly payment:
Homeowner's Insurance — Required by your lender. It covers the structure and your belongings in the event of damage or disaster. Typical annual premiums run $1,000–$2,500 depending on the home, location, and coverage level. That's roughly $85–$210/month.
PMI (Private Mortgage Insurance) — If your down payment is less than 20%, you'll pay PMI. This protects the lender — not you — in case you default. PMI typically runs 0.5%–1.5% of the loan amount annually. On a $350,000 loan, that's $145–$440/month, and it doesn't go away until you've built enough equity.
What This Looks Like in Real Numbers
Let's put it together on a $400,000 home with 10% down ($360,000 loan) at 7%:
ComponentMonthly CostPrincipal & Interest~$2,395Property Taxes (1.2%)~$400Homeowner's Insurance~$150PMI (~0.85%)~$255 Total PITI~$3,200
That's $3,200/month — not the $2,395 figure a mortgage calculator might spit out. A lender may approve you for this payment, but whether it's right for your life is a different question.
A common rule of thumb is to keep total housing costs under 28–30% of your gross monthly income. At $3,200/month, that means you'd want to be earning at least $11,000–$11,500/month (roughly $130,000–$138,000/year) to stay in that range comfortably.
The Bottom Line
Affording a home isn't just about qualifying for a mortgage — it's about understanding the full monthly cost before you commit. Lenders will often approve you for more than is comfortable, and a mortgage calculator doesn't tell the whole story.
Know your PITI. Run the real numbers. And give yourself a buffer — because owning a home also comes with maintenance, repairs, and the unexpected costs that renting insulates you from.
If you want to know what a home actually costs in your target price range, reach out. Running these numbers is exactly what I'm here for.
