All articles 7 min read

Homeownership Affordability: Costs Beyond Principal and Interest

The payment in a mortgage advertisement is only one part of owning a home. Insurance, taxes, association charges, repairs, and other expenses compete for the same household income. Before choosing a price range, identify which costs are included in the quoted payment and which will arrive separately. A lender's maximum approval is not a household spending plan.

The questions below use selected Consumer Financial Protection Bureau guidance, adapted and organized by Fynoptic. Source links and the dates displayed by those sources are provided at the end.

How can I figure out if I can afford to buy a home and take out a mortgage?

Focus on a mortgage that is affordable for you given your other priorities, not how much you qualify for.

Lenders will often tell you how much you are qualified to borrow – that is, how much they are willing to loan you. Several online calculators will compare your income and debts and come up with similar answers based on standard ratios. But how much you could borrow is very different from how much you can afford to repay without stretching your budget for other important items too thin. Lenders do not take into account all your family and financial circumstances.

To know how much you can afford to repay, you’ll need to take a hard look at your family’s income, expenses and savings priorities to see what fits comfortably within your budget. Also, remember that your monthly payment could change in the future, depending on what type of mortgage loan you have. Consider how future, higher mortgage payments will fit in with your budget.

Don’t forget other mortgage- and home-related costs when determining your ideal payment. Homeowner’s insurance, property taxes, and possibly private mortgage insurance or homeowners association fees are typically added to your monthly mortgage payment, so be sure to include these costs when calculating how much you can afford. There may also be costs for repairs and maintenance of your home. You can get estimates from your insurance agent, local tax assessor, homeowners association, and lender. Knowing how much you can comfortably pay each month will also help you estimate a reasonable price range for your new home.

Don’t sacrifice savings in order to buy a bigger house. When reviewing your budget to determine an affordable mortgage payment, don’t forget about your savings. You likely will still need to save for emergencies, retirement, college for the children, and other priorities even after you’re a homeowner. Consider adding more money to your emergency fund or household fund to avoid going into debt to pay for sudden repairs, expensive replacements, or other necessities.

Some home-related costs are likely to rise over time. Consider using a tool to estimate the disaster risk of a home and think about how this may impact the future availability and cost of homeowner’s insurance. If you are located in or near a high-risk flood area, you may also be required or opt to buy flood insurance at additional cost. Building codes and energy efficiency can also affect a home’s utility and insurance costs.

What are some of the financial considerations of buying a home?

Becoming a homeowner is a significant financial step and commitment. There are a few considerations to keep in mind, including understanding the costs of homeownership.

Buying a home and taking out a mortgage might make sense if:

  • You’re willing to stay put for a few years. Buying and selling a home are expensive processes involving lots of fees, taxes and commissions. You’ll want to stay in the home long enough to make these costs worth it. Also, if home prices decline, you might find that you can't move after just a few years because you may owe more than the house is worth.
  • You have a steady source of income and a good record of paying your bills on time. Lenders will look at your ability to repay the mortgage and how positive your credit history is when deciding if you qualify for a loan.
  • You are able to pay for property taxes, homeownersand other insurance, water, and other utilities which might cost more than utilities you might pay for when you're renting. These costs are also likely to increase over the course of your mortgage.

Tip

Learn how new mortgage rules may help you when you shop for a mortgage.

  • You can cover the cost of repairs and maintenance. When you own the home, you’re responsible for maintenance and repairs – from small ones like a leaky faucet to major ones like replacing a roof. Be sure to build an emergency fund to cover unexpected expenses.
  • The potential tax advantages make sense given your financial situation. Consult your financial or tax advisor to determine whether there are tax advantages to buying instead of renting.

If you are considering buying, you can learn more by following the steps in CFPB’s homebuyer toolkit.

On a mortgage, what’s the difference between my principal and interest payment and my total monthly payment?

The difference between your principal and interest payment and your total monthly payment is that your total monthly payment usually includes additional costs like homeowners insurance, taxes, and possibly mortgage insurance.

The principal and interest payment on a mortgage is probably the main component of your monthly mortgage payment. The principal is the amount you borrowed and have to pay back, and interest is what the lender charges for lending you the money.

For most borrowers, the total monthly payment you send to your mortgage company includes other things, such as homeowners insurance and taxes that may be held in an escrow account. If you have an escrow account, you pay a set amount with every mortgage payment for these expenses. Your mortgage company typically holds the money in the escrow account until those insurance and tax bills are due, and then pays them on your behalf. If your loan requires other types of insurance like private mortgage insurance, these premiums may also be included in your total mortgage payment as well.

What goes into my total monthly mortgage payment?

Here’s how it works:

Principal + interest + mortgage insurance (if applicable) + escrow (homeowners insurance and tax) = total monthly payment

If you live in a condo, co-op, or a neighborhood with a homeowners’ association, you will likely have additional fees that are usually paid separately.

Although your principal and interest payment will generally remain the same as long as you make regular payments on time (unless, for example, you have a balloon loan), your escrow payment can change. For example, if your home increases in value, your property taxes typically increase as well.

When considering a mortgage offer, make sure to look at the total monthly payment listed on the written estimates you receive. Many homebuyers make the mistake of looking at just the principal and interest payment, leading to an unpleasant surprise when they learn their total monthly payment is much higher. You can find your estimated total monthly payment on page 1 of the Loan Estimate, in the “Projected Payments” section.

Many lenders require you to pay your taxes and insurance in advance using an escrow account, but not all do. If there’s no escrow payment listed on your Loan Estimate, these costs won’t be included in your monthly payment to your mortgage lender. Instead, you’ll have to pay property taxes directly to your state or local government and homeowners insurance directly to your insurance company. To make sure you can afford the mortgage, find out what your property tax and homeowners insurance bills will be, and calculate the total monthly payment yourself. Ask your real estate agent where to get this information.

If one lender requires you to pay taxes and insurance into an escrow account, but another doesn’t, compare the offers by looking at the principal and interest payment instead of the total monthly payment. Make sure to calculate the total monthly payment as well so you can be certain you can afford it.

Are condo/co-op fees or homeowners' association dues included in my monthly mortgage payment?

Usually not. Condo/co-op fees or homeowners’ association dues are usually paid directly to the homeowners’ association (HOA) and are not included in the payment you make to your mortgage servicer.

Condominiums, co-ops, and some neighborhoods may require you to join the local homeowners’ association and pay dues (HOA dues).

Tip: Homeowners’ association dues can range from a few hundred dollars a month to more than one thousand dollars a month. Be sure to factor in this cost when deciding if you can afford the mortgage to purchase a home or refinance.

Although not common, your mortgage servicer may be willing to include your HOA dues in the escrow portion of your monthly mortgage payment upon request.

Sources and further reading

The CFPB source passages are U.S. government work in the public domain. Fynoptic has selected, organized, and adapted the material for this guide, including corrections identified through the additional sources listed above. Sources accessed October 27, 2026. This use does not imply agency endorsement or affiliation.

Back to all articles