Mortgage FAQ

PITI stands for Principal, Interest, Taxes, and Insurance — the four components of a complete monthly mortgage payment. Most online calculators only show P&I (principal + interest), which can significantly understate your true monthly cost. PITI is the figure lenders use to calculate your debt-to-income ratio, and it's what you'll actually owe each month. HOA dues, though not technically part of PITI, are often included in lender DTI calculations as well.

The principal and interest portion uses the standard amortization formula: Payment = P × [r(1+r)^n] / [(1+r)^n – 1], where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the number of payments (years × 12). In the early years most of each payment goes to interest; over time more goes to principal. Property tax and insurance are added as monthly escrow estimates on top of P&I.

An escrow account is a holding account managed by your lender or servicer. Each month, a portion of your payment is deposited into escrow to cover your annual property taxes and homeowners insurance when they come due. This protects the lender by ensuring those bills are always paid, and it prevents homeowners from facing a large lump-sum payment. Your lender will review the escrow account annually and adjust your monthly payment if tax or insurance costs change.

PMI (Private Mortgage Insurance) is required on conventional loans when your down payment is less than 20% of the home's purchase price — meaning your loan-to-value (LTV) ratio exceeds 80%. The cost typically ranges from 0.2% to 2.0% of the loan amount annually, depending on your credit score, LTV, and lender. On a $300,000 loan at 0.8% PMI, that's $200/month. PMI does not protect you — it protects the lender in case you default.

Under the Homeowners Protection Act, your lender must automatically cancel PMI when your loan balance reaches 78% of the original purchase price (based on your payment schedule). You can request cancellation earlier once your balance reaches 80% LTV — but you may need a new appraisal to confirm current market value. If your home has appreciated significantly, a refinance may be the fastest path to eliminating PMI.

No. Conventional loans are available with as little as 3% down (for first-time buyers through Fannie Mae's HomeReady or Freddie Mac's Home Possible programs). FHA loans require just 3.5% down. VA loans and USDA loans require 0% down for eligible borrowers. The trade-off is that putting less than 20% down typically means paying PMI on a conventional loan, or MIP (Mortgage Insurance Premium) on an FHA loan.

Debt-to-income (DTI) ratio is your total monthly debt payments divided by your gross monthly income. Lenders look at two versions: front-end DTI (housing costs only ÷ income) and back-end DTI (all debts including housing ÷ income). For conventional loans, most lenders want a front-end DTI below 28% and back-end below 36%. FHA loans allow up to 43% back-end DTI. The lower your DTI, the stronger your application and the better rate you're likely to qualify for.

A rough rule of thumb is that you can afford a home worth 2.5–3.5× your annual gross income, depending on your down payment, debts, and current rates. At 7% interest with 10% down and no other debts, someone earning $80,000/year could typically afford a home in the $260,000–$310,000 range. Use our Home Affordability Calculator for a precise estimate based on your actual numbers.

An amortization schedule is a complete table of every payment over the life of your loan, showing the exact split between principal and interest for each payment, cumulative totals, and remaining balance after each payment. In the early years of a mortgage, most of each payment is interest — not principal. For example, on a $350,000 30-year loan at 7%, your first payment of roughly $2,329 includes about $2,042 in interest and only $287 in principal. See our Amortization Schedule Calculator.

Yes — significantly. Extra payments reduce the principal balance faster, which reduces the interest charged on subsequent payments. On a $350,000 30-year loan at 7%, adding just $200/month extra could save over $60,000 in total interest and pay off the loan 5–6 years early. Our amortization calculator has an "extra payment" field so you can see exactly how much time and money you'd save.

Refinancing generally makes sense when: (1) the new rate is at least 0.5%–1% lower than your current rate, (2) you plan to stay in the home long enough to recoup the closing costs (the break-even point), and (3) you're not so far into your loan that restarting the amortization clock costs more than it saves. Use our Refinance Calculator to find your exact break-even month and total interest saved.

Closing costs are fees paid at the settlement of a real estate transaction. They typically total 2%–5% of the loan amount and include: lender origination fees, appraisal, title insurance, title search, recording fees, state transfer taxes, prepaid interest, and initial escrow deposits. Buyers typically pay closing costs, though sellers sometimes offer concessions that cover some or all buyer costs as part of negotiation.

A Loan Estimate is a standardized three-page document that lenders are required by law (under TRID/RESPA) to provide within three business days of receiving a mortgage application. It shows the estimated interest rate, monthly payment, and closing costs. It is the authoritative source for what you'll actually pay — more accurate than any calculator estimate. Always compare Loan Estimates from multiple lenders before choosing.