Understanding Your Mortgage Payment: What’s Included and Types of Mortgages
Buying a home is an exciting milestone, but understanding your mortgage payment is crucial to making informed financial decisions. Let’s break down the key components of a mortgage payment and explore the different types of mortgages available.
What’s Included in a Mortgage Payment?
Your monthly mortgage payment typically consists of four main components, commonly referred to as PITI:
Principal – This is the amount you borrowed from the lender. Each payment you make reduces the principal balance over time.
Interest – The lender charges interest on the loan, which is the cost of borrowing the money. Your interest rate is determined by factors such as credit score, loan type, and market conditions.
Taxes – Property taxes are collected by local governments and are often included in your mortgage payment. The lender places these funds into an escrow account and pays the taxes on your behalf.
Insurance – Homeowners insurance protects your home against damage and liability. If your down payment is less than 20%, you may also be required to pay private mortgage insurance (PMI) for conventional loans or mortgage insurance premiums (MIP) for FHA loans.
Some mortgage payments may also include homeowners association (HOA) fees if you live in a community with an HOA.
Types of Mortgages
There are several types of mortgages available, each catering to different financial situations and homeownership goals.
1. Conventional Loans
Not backed by the government.
Typically require a credit score of 620 or higher.
Down payments as low as 3% for some buyers.
PMI is required if the down payment is less than 20%.
Best suited for borrowers with good credit and stable income.
2. FHA Loans (Federal Housing Administration Loans)
Designed for first-time and low-to-moderate-income buyers.
Requires a minimum credit score of 500 with a 10% down payment or 580 with a 3.5% down payment.
Mortgage insurance is required for the life of the loan unless refinanced.
Ideal for buyers who may not qualify for conventional loans due to lower credit scores.
3. VA Loans (Veterans Affairs Loans)
Available to eligible military service members, veterans, and their families.
No down payment required.
No private mortgage insurance (PMI) required.
Competitive interest rates and flexible qualification standards.
Best for veterans and active military members looking for affordable home financing.
4. Jumbo Loans
Used for properties that exceed conventional loan limits (currently $726,200 in most areas, but higher in certain high-cost regions).
Typically require a credit score of 700 or higher.
Larger down payments, often 10-20% or more.
Higher interest rates and stricter qualification standards.
Ideal for luxury home purchases or high-cost real estate markets.
Choosing the Right Mortgage
Selecting the best mortgage depends on your financial situation, homeownership goals, and credit profile. Whether you’re a first-time buyer, a veteran, or purchasing a high-value home, understanding your options will help you secure the right financing for your needs.
I'm Here to Help!
Would you like to know how much a home you are interested in would cost you per month? Here is a link to my mortgage calculator to give you an idea of what the mortgage payment would be on your dream home.
If you need a recommendation for a lender, or have any other questions regarding mortgage, please call or text me at (407) 707-6502. I’m here to help you!
