How Much House Can You Afford? A Practical Guide to Your Monthly Mortgage Payment
Learn how down payment, interest rate, PMI, and loan term combine to determine your real monthly mortgage cost — and how to avoid the most common home-buying budget mistakes.
Buying a home is likely the largest purchase you'll ever make, and the sticker price on a listing rarely tells the whole story. Your actual monthly cost depends on your down payment, your interest rate, your loan term, and a handful of extra costs that catch first-time buyers off guard. Here's how each piece fits together.
1. Principal & Interest Is Just the Starting Point
Most people think of their "mortgage payment" as principal and interest (P&I) — the amount that pays down your loan balance plus the interest charged on it. But lenders actually qualify you based on **PITI**: Principal, Interest, Taxes, and Insurance. Skipping the last two when budgeting is the single most common mistake new buyers make.
2. The 20% Down Payment Myth
You don't need 20% down to buy a home — many loan programs accept far less. But if your down payment is under 20%, lenders typically require **Private Mortgage Insurance (PMI)**, an added monthly cost (often around 0.5-1% of the loan annually) that protects the lender, not you. PMI usually cancels automatically once you reach roughly 20-22% equity.
3. Loan Term Changes More Than Your Payment
Choosing between a 15-year and 30-year mortgage isn't just about affordability — it's about total cost. A 30-year loan spreads payments out and lowers your monthly obligation, but you'll pay significantly more in cumulative interest. A 15-year loan costs more per month but can save tens of thousands of dollars in interest over the life of the loan.
4. Property Tax and Insurance Vary Enormously by Location
Two identical homes in different counties can have wildly different property tax bills. Before you fall in love with a listing, check the local property tax rate and get a homeowners insurance quote — both are usually collected monthly as part of an escrow account alongside your P&I payment.
Worked Example
Financing a $400,000 home with 20% down ($80,000), a 6.875% rate, and a 30-year term:
- Loan amount: $320,000
- Principal & interest: ≈ $2,100/month
- Property tax + insurance: ≈ $400/month
- No PMI required (20% down)
- **Total monthly payment: ≈ $2,500**
Drop the down payment to 10% and PMI adds roughly $165/month on top — a cost worth weighing against waiting to save a larger down payment.
Try the calculator
Model your own numbers — home price, down payment, rate, term, taxes, and insurance — and get an instant PITI breakdown plus a full amortization schedule with our Mortgage Calculator.
Try the calculator
Calculate your monthly mortgage payment including principal, interest, taxes, insurance, and PMI. See your full amortization schedule and how extra payments save you thousands.