Mortgage Payments - Where Does All That Money Go?

MONTHLY MORTGAGE PAYMENTS

(Where does all of that money go each month when I make my payment?)

To better understand a monthly payment, think of the acronym PITI for starters.  PITI can be defined as follows:

1. Principal + Interest (P+I) - The P+I portion of your monthly payment is typically the largest. "Principal" can be defined as the amount of money you have borrowed (and are now starting to pay back). "Interest" is the ongoing finance charge of borrowing that money.  Once we can determine the exact amount of your loan, the interest rate, and the amortization period (i.e. the amount of years you are paying back the loan...typically 30 years), we can determine the "P+I" payment to the penny. CLICK HERE TO ACCESS A FREE ONLINE MORTGAGE CALCULATOR to determine your exact P+I payment.
2. Property Taxes (T) - The County Assessor where the property is located considers this home as a source of ongoing revenue. In essence, the County Assessor will assess a "mathematical factor" to multiply by the "property value" (i.e. the new purchase price) to determine the annual/monthly property taxes due once you purchase your new property.  An example of how Property Taxes are calculated is as follows: 
   • Purchase Price ($600,000) x .0125 (1.250% of the purchase price) = $7,500 divided by 12 months = $625.00 per month
   • NOTE: If your property has "Mello Roos" property taxes, you can expect the overall mathematical factor to be higher, resulting in higher monthly property taxes
3. Homeowners Insurance (I) - Lenders always think of "worst case scenarios" and want to make sure the property (collateral for the loan) can be rebuilt in the event of a catastrophe (i.e. if the home was burnt down in a fire).  For now, feel free to estimate roughly $70.00 - $90.00 per month (this number will vary depending on your coverage amounts, property characteristics, and insurance company...among other potential factors).
   • NOTE: Other names for this insurance include "Hazard Insurance" and "Fire Insurance" (these terms all refer to the same type of Insurance)

In addition to the PITI calculations mentioned above, you "may" also have the following additional payments (depending on your individual circumstances):

• Private Mortgage Insurance (PMI) - Typically when you purchase a home with less than 20% down, the Lender will require PMI.  The amount of PMI you will pay monthly will be determined by your down payment percentage, your credit score, property type, and the State in which your property is located.  There are often options to "buy out" your PMI up front, which I will be happy to explain if/when desired.
• Homeowners Association (HOA) Dues - If you purchase a Condominium, you will likely have HOA Dues to pay.  Although you will pay these fees directly to the HOA itself (the same as you would pay a utility bill directly), Lenders will calculate the HOA payment into your qualifying "debt-to-income ratios" (so it is imperative that you let your Lender know if you are considering a home with HOA Dues).
  • NOTE: If you have HOA Dues, you will likely be able to reduce the amount of Homeowners/Hazard Insurance down a bit (closer to $35.00 - $45.00 per month). 

Related Topic: How to Calculate an FHA Mortgage Payment

Related Topic: FHA vs Conventional (Pros & Cons for each)

Now that you have a strong understanding about the above-referenced topic, it is time to get a better understanding of your mortgage quote.  Before you go any further, please CLICK HERE to learn about The Truth Behind Mortgage Advertising.

~ "Loan Amounts" Matter Too! ~

Conforming Loan Amount limits vary among different counties across the country (and change approximately once every 12 months).  As an example, the conforming loan limits (for a 1 unit property in San Diego County as of 2022) are as follows:

CONFORMING - Loan amount up to $647,200

HIGH BALANCE CONFORMING - Loan Amounts from $647,201 - $879,750

JUMBO (NON-CONFORMING) - Loan amounts of $879,751 and above

(NOTE: The High Balance Conforming Loan Limit in Los Angeles and Orange County is $970,800)

To learn the Conforming Loan Limits for other Counties, please CLICK HERE

Please note that pricing (rates/fees) and approval guidelines will often vary between the 3 above Loan Amount categories. 

As I am sure you can imagine, the above information is merely the tip of the iceberg when it comes to pursuing a new home and mortgage.  Consider this information an initial "cheat sheet" to get you started.  

Please remember that I am more than happy to answer questions specific to the plan you are pursuing. Please do not hesitate to contact me if/when I can be of further assistance.  Thank you for taking the time to read this information.