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Your mortgage payment comprises principal and interest, plus taxes and insurance. These four costs are often referred to as PITI.  Here’s what these costs mean for your loan:

• Principal: The amount you borrowed from the lender, effectively your home’s price minus the down payment.
• Interest: The amount the lender charges you to borrow the principal (loan amount). Interest rates are expressed as an annual percentage.
• Property taxes: The tax on your home levied by your city or town, paid for as long as you own it. If your mortgage lender requires an escrow account, you’ll pay a portion of your annual property tax bill with each monthly mortgage payment.
• Homeowners insurance: Your policy helps protect you financially from losses caused by covered events. If you live in a flood zone or other disaster-prone area, you’ll likely be required to have additional coverage. As with property taxes, you’ll pay a portion of your annual insurance premium each month with your mortgage payment.
• Mortgage insurance: If you’re borrowing a conventional or FHA loan and your down payment is less than 20 percent of the home’s purchase price, you’ll pay mortgage insurance premiums, which are also added to your monthly payment.

There are other costs associated with a home purchase to be familiar with as well:

• Down payment: The portion of the home’s price you pay upfront, not financed with a mortgage. For many borrowers, this can be as little as 3 percent.
• Closing costs: The many one-time fees associated with getting a mortgage. These can include the lender’s origination fee, recording fees and fees for settlement and title services. Altogether, closing costs typically run 2 percent to 5 percent of the mortgage and are usually paid by or on the day the loan closes.