Cost of Homeownership April 19, 2008

What Will My Monthly Home Payment Be?

When showing property, I’m often asked the question, “What will my monthly payment be on this house?”

The answer many people give is simply the amount owed on the home each month, which is often called PI – principle and interest. On a $400,000 home, this would be about $1,920 (assuming 20% down and a 6% interest rate).

However, PI does not completely account for the cost of homeownership. There are other reoccurring costs. Those with a little real estate savvy often use the term PITI. It stands for Principle, Interest, Taxes, and Insurance. In addition to PI, it accounts for the cost of property taxes and homeowner’s insurance. This presents a much better picture of what owning a home will cost.

On our $400,000 home in Tahoe (mentioned above), we can expect to pay about $400 a month in property taxes. Insurance will cost around $100. I also like to account for the cost of water, sewer, and trash, which will be about $120. Add this to our $1,920 mortgage, and we’re paying $2,540 per month. Thus, PITI and water/sewer/trash accounted for an additional $620 of expenses above and beyond payments on the house.

Before getting to the nitty-gritty, I want to mention that every homebuyer should account for tax write-offs. The interest you pay on your property can be written off at tax time. This tax break can be VERY significant.

So in answer to the question, “What will my monthly payment be on this house?” I’ve created the following table to provide an answer to almost anyone shopping in Tahoe.

Home Price PITI w/20% Down PITI w/10% Down







































* Interest on 20% down loan = 6%. Interest on 10% down loan is calculated at an additional 0.5% for PMI. Property taxes = 1.2%. Insurance = 0.3%. Water/sewer/trash = $120.