A common term used to describe the monthly expense involved with a mortgage is called the PITI payment.
PITI stands for payment, interest, taxes and insurance. The first three costs are self-explanatory, though the last deals with a common requirement a first time home buyer may not initially recognize.
Almost all bank loans must be secured with homeowner’s insurance in order to reduce the risk that the home will not lose value due to an unforeseen catastrophe.
It also hedges against the mortgagor being unable to afford payments. Homeowners insurance typically covers both property and liability, meaning it will reimburse the owner in the event of physical damage to the home or an injury that occurs within it.
Damage involved with such phenomena as fire, lightning, a tree falling down - even riots - are common claims.
There are several different levels of coverage that the buyer may want to consider, though consider that the wider the protection the more expensive it will be.
It is important to note that certain weather conditions that are only specific to certain areas will not be covered. FEMA, the national organization that aides the public after a natural disaster, subsidizes the costs of Flood Insurance.
This is necessary only where heavy rains or high water levels could damage the interior of a home. Each state will denote a high risk flood area where residents are required to hold this type of policy.
Thus, the “insurance” portion of PITI is the premium (monthly cost) of the specific policy.
The cost of homeowner’s insurance varies, though usually it is congruent with the overall value of the home it protects.
For example, a million dollar home will have a vastly larger premium than a home that costs half a million or less.