Module 3: The True Cost

The mortgage payment is the headline number. It's also the least honest number. Here's the full bill.

Lesson 3.1: PITI — The Four Letters That Own Your Budget

Your mortgage payment is not your housing payment. Your housing payment is PITI: Principal, Interest, Taxes, and Insurance. Four components, one monthly bill, and the first two are only half the story.

Let's price it on a $350,000 house with 10% down ($315,000 loan) at 7%:

Principal & interest: ~$2,096
Property tax: ~$300 (this varies wildly — see below)
Homeowner's insurance: ~$150
Total PITI: ~$2,546

Property tax is the wildcard. It's set by your county or municipality, and rates range from under 0.5% to over 2.5% of the home's assessed value per year. That same $350,000 house costs you ~$145/month in taxes in one state and ~$730/month in another. When comparing houses across town lines, always compare the tax bill — a "cheaper" house in a high-tax town can cost more per month than a pricier house in a low-tax one.

Homeowner's insurance is required by your lender and prices on risk: the home's age, construction, your area's weather history, and your deductible. Get quotes from at least three insurers before closing — the spread can be hundreds a year, and you're stuck with this bill for as long as you own the home.

The takeaway: never evaluate a house on principal and interest alone. Ask for the tax history, get insurance quotes early, and run the full PITI before you fall in love. Love is blind; PITI is 20/20.

One more tax note: property taxes can — and do — rise. Check the property's tax history for the last five years. A house with taxes jumping 8% a year will eat your budget alive even if the price looks fine. And if you're buying in an area with a reassessment cycle, budget for the assessed value catching up to what you paid.

Do this now: Pick three houses currently for sale in your target area, look up each one's annual property tax (county assessor sites are public), and divide by 12. Write the monthly numbers down. Notice how different they are.

Lesson 3.2: The 1% Rule and Why Maintenance Is a Bill

Every house is a subscription service. The 1% rule says: budget 1% of the home's value per year for maintenance and repairs. On a $350,000 house, that's $3,500/year — about $292/month. It's not exact, but it's the best planning number that exists.

Why 1% exists: nothing in a house lasts forever, and everything fails on its own schedule. Roofs last 20–30 years ($10,000–20,000 to replace). HVAC systems last 15–20 years ($5,000–10,000). Water heaters last 8–12 years ($1,500). Appliances die. Pipes leak. Paint peels. The 1% rule smooths all of that into one monthly number so a dead furnace in January is an inconvenience, not a crisis.

Adjust the rule to your situation:

Newer home (< 10 years): 0.5–1% is usually fine.
Older home (20+ years): budget 1.5–2%. Systems are aging out together.
Condo/townhouse: lower, since the HOA covers the exterior — but you're paying for that in dues.

Park this money in your emergency fund (Module 1). Maintenance isn't an emergency — it's a schedule. Treat the monthly reserve like a bill, because it is one.

Here's what surprises first-timers: the big-ticket items cluster. A 25-year-old roof, a 20-year-old furnace, and a 12-year-old water heater in the same house means three five-figure bills arriving within a few years of each other. When you're evaluating a house, the inspection should tell you the age of every major system — then map those ages against replacement costs and add it to your offer math. A house with new systems is worth more than the same house with old ones, full stop.

Do this now: Take the price of the house you're imagining, multiply by 0.01, divide by 12. Add that number to the PITI you calculated in Lesson 3.1. That's your real monthly cost. Sit with it for a minute.

Lesson 3.3: Closing Costs — The $15,000 Nobody Warns You About

First-time buyers budget for the down payment and forget closing costs — then panic when the number shows up. Closing costs typically run 2–5% of the purchase price. On a $350,000 house, that's $7,000–$17,500, due in cash on closing day, on top of your down payment.

Where the money goes:

Loan origination and lender fees: 0.5–1% of the loan. This is the Section A you learned to negotiate in Module 2.
Title insurance and title search: ~$1,000–2,000. Protects you if someone else claims they own your house.
Appraisal: ~$300–600. The lender's check that the house is worth the loan.
Home inspection: ~$300–500. Your check that the house isn't a lemon. (More in Module 5.)
Prepaid taxes and insurance: your lender collects several months upfront to fund the escrow account.
Recording fees and transfer taxes: vary by state and county.

Ways to shrink the number: negotiate a seller credit (the seller pays part of your closing costs — common and completely normal), compare lenders' fee sections line by line (remember Module 2), and ask about first-time buyer programs in your state — many offer closing-cost assistance or tax credits.

Read your Closing Disclosure the day before closing. Lenders must send it at least three business days before you sign. Compare it to your Loan Estimate line by line. Surprise fees at the closing table are rare when you've done this — and very fixable when you catch them early.

A note on seller credits: in a buyer's market, asking the seller to cover 2–3% of closing costs is standard. In a hot seller's market, it can weaken your offer. Know your market before you ask — your agent should tell you honestly which one you're in. And first-time buyer programs: every state has a housing finance agency with programs for first-timers. Some offer down payment assistance, some offer closing-cost grants, some offer tax credits. They're income-limited and paperwork-heavy, but free money is worth paperwork.

Do this now: Take your target home price, multiply by 0.03, and write down that number. Add it to your down payment savings goal. That's the real cash you need on closing day.

Lesson 3.4: New Construction vs. Resale — The Real Cost Math

New construction and resale aren't just different vibes — they're different cost structures. Run the real math before you pick a side.

New construction pros: everything's new (low maintenance for years), modern energy efficiency (lower utility bills), builder warranties (typically 1 year bumper-to-bumper, 10 years structural), and you pick the finishes. Cons: you pay a premium (10–20% over comparable resale), the lot is usually smaller, landscaping is on you, and upgrades at the design center are priced like airport food.

Resale pros: established neighborhoods, mature trees, bigger lots, room to negotiate, and the price reflects reality instead of a builder's spreadsheet. Cons: older systems (see the 1% rule), dated layouts, and renovation costs that always exceed the estimate.

The hidden costs of new construction: the base price is a starting bid. Lot premiums, structural options, and design-center upgrades can add 15–30% to the sticker price. Then the HOA (new developments almost always have one), higher property taxes (assessed at your purchase price), and a yard that's a mud pit until you landscape it.

The hidden costs of resale: inspection surprises, immediate repairs, and the renovation you swore you'd do "later." Budget a 20% contingency on any renovation estimate — the estimate is a floor, not a ceiling.

Neither is wrong. New construction buys you predictability; resale buys you value and character. Just make sure you're comparing total cost of ownership — price, taxes, HOA, maintenance, utilities — not sticker prices.

Do this now: Write one sentence on which side you're leaning toward and why. If you don't know yet, that's an honest answer — tour one of each before deciding.