My Mortgage Payment

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Your monthly mortgage payment is made up of several components. This housing expense is commonly referred to as P.I.T.I., or Principal, Interest, Taxes and Insurance. Mortgage Insurance, Flood Insurance, and Homeowners
Association fees, if applicable, may also be a portion of your total payment.

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Principal – The portion of your payment that is applied to pay down your original mortgage balance over time.

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Interest – A charge for the use, or loan, of money. The interest is calculated on unpaid principal balance, at the current interest, if fixed or adjustable.

Taxes – The county assessor charges property tax based on the assessed valuation of your home. For example, in California, there are two tax installments due each year; one in November, the second in April.  In Nevada, the annual property tax is payable in four equal installments during the year.

Insurance – This pays for losses from certain hazards, including fire. This standard insurance pays for replacement costs based on actual cash value.

Homeowners Association (HOA) Dues – Fees paid by homeowners within a community of homes, condos, townhouses, or planned unit developments (PUD). HOA dues are collected from all owners to cover the cost and maintenance of communal areas to entire the property.

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Mortgage Insurance (MI) – Depending on your loan program or the amount of your down payment, you may be required to have MI included in your monthly payment.  For any purchase with less than 20% down - a higher risk of default - requires MI. Because loans with small down payments involve substantially more risk for the lender, they require insurance as a hedge against borrower default. The cost of MI varies according to your loan type, down payment, and credit score. FHA Loans charge a fee for life-of-loan mortgage insurance, called Mortgage Insurance Premium (MIP). VA Loans charge an upfront Guaranty Fee in lieu of a monthly mortgage insurance fee.

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Closing Costs

Below is an overview of the types of closing costs you may incur. When you apply for your loan, you will receive a Loan Estimate and a booklet that will explain these costs in detail. At loan closing, you will receive a Closing Disclosure summarizing your actual loan costs and fees.

Appraisal Fee – Conducted by an independent appraisal company, this pays for a statement of property value for the lender. You will receive your own copy.

Credit Report Fee – This covers the cost of the credit report that is run by an independent credit-reporting agency and is used to prequalify you for a loan and to underwrite your completed loan application.

Escrow Impound Account – If you choose to have an impound account, have a government funded FHA or VA Loan, or if your down payment is less than 20%, the lender may require you to establish an account held in trust for you
by the lender to pay the costs of your property taxes and homeowner's insurance premium when they become due. Your monthly payment will include the loan Principal, Interest, Taxes, and Insurance (collectively, P.I.T.I.).  Most loan programs allow the borrower to opt-out of these impound accounts.

Loan Discount – Often called discount points, a loan discount is a one-time charge used to buy down your specific transaction’s interest rate. One point is equal to 1% of the loan amount, and is payable directly to the lender at closing.

Loan Origination – This fee covers the lender’s underwriting costs for originating your loan.

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Title & Escrow Charges and Document Preparation – The title company may charge one-time fees for a title search and examination, document preparation, notary fees, recording fees, courier fees, and a settlement or closing fee.  There are two title policies with a one-time fee: a lender’s title policy, which protects the lender against losses due to defects on title, and a buyers title policy, which protects the borrower against defects on the title above the loan amount up to the sales price.

Prepaid Interest – Amount accrued on a daily basis from the date of loan closing to the due date of your first loan payment.

Taxes and Hazard Insurance – You will be expected to pay for property taxes upfront, including the entire years’ hazard insurance premium. In addition, you may be required to allocate property taxes and property insurance
(may include homeowners, flood) into a reserve account, called an impound account, held by the lender.

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