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Understanding Indiana Mortgage, Escrow & Additional Costs
Understanding Mortgage, Escrow & Additional Costs: PITI,
Principal, Interest, Taxes, Homeowners Insurance, Private Mortgage
Insurance, Title Insurance
VIP Realty can help find the right home for you, and the financing you need
to make the purchase, in Central Indiana. Besides a basic mortgage, getting
into a home will usually take some upfront money, the amount of which can
vary depending on your financing decisions, as discussed in Understanding the Numbers.
It is also important to understand the basic elements of a
typical mortgage, as well as the escrow process for the timely
payment of certain fees
Understanding Indiana Mortgages and Escrow
The total cost of a mortgage has four elements, known it
the financial world as PITI:
- Principal - represents the amount you borrow, which
has to be repaid over time
- the cost to the lender during your repayment schedule
- Taxes - fees charged by local governments to pay for
local services. Property tax rates can vary widely by location
and can affect your total cost and increase payments beyond your
- (Homeowners) Insurance - required to cover the loan
value in the event of a disaster such as fire, earthquake, flood, etc.
(note: not all of these events are covered by standard
homeowners insurance. Consult an insurance agent to determine
all required coverage)
Many times buyers ignore the additional costs when figuring how much of a home they can afford. PITI is part of the formula that lenders use when calculating your affordability ratios.
Your total monthly payment will include payments for:
In most cases, mortgages are automatically set to collect these
fees by adding the amount you need to pay for taxes and insurance each month to your mortgage payment.
These fees are then placed into an escrow account that the lender manages and
uses to pay the fees on your behalf when they come due.
If your mortgage isn't set up with an escrow account, you will need to pay your taxes and insurance
yourself and be able to provide proof of payment to your lender.
Local Property Taxes in Indiana
Your county and city may levy taxes on your property.
These taxes pay for government services such as schools, roads,
police, and other community services. The annual tax is usually
calculated as a percentage (factor) of your property's appraised
- You can contact your local community and county officials to
determine your county and city tax factor.
- Many of these local real estate taxes may qualify for tax
deductions. Check with your tax advisor for more information.
- At your home closing, you will be required to prepay up to
one year's cost of your property tax.
- Then each month, your loan payment will include 1/12 of the
annual property tax that will be deposited in your escrow
account until the property tax payment is due.
Indiana Homeowners Insurance
You may be required to carry hazardous insurance on your
in the event of a fire, flood, disaster, and any other natural
disaster that destroys or partially destroys your home.
The insurance will protect your investment (and the lender's) and
repair any damage that may occur. The annual premium may vary
depending on your home area and location. You must provide proof
of insurance before closing and settlement.
- At your closing, you may be required to prepay up to one
year's cost of hazardous insurance.
- Then each month your loan payment will include 1/12 of
the annual hazard insurance premium to be deposited in your
escrow account until payment is due.
Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is mortgage default insurance
that is required for all conventional mortgage loans with less than
a 20% down payment. It is designed to pay the lender a portion
of the outstanding balance of a loan in the event the homeowner
If PMI is required as part of your loan, the initial annual
premium will be included in your closing costs while your
subsequent premiums (1/12th of your annual premium) will be included
in your monthly mortgage payments and deposited in your escrow
You will need to check with your lender to estimate your cost
percentage for PMI if your down payment is less than 20%.
Nationally, the average annual percentage is around 0.005 of your
In addition to these insurance programs, buyers will need to purchase
Title Insurance to protect their lenders, and themselves, against
any future claims on the property. For more information, read the
section About Title Insurance.
Now that you have an idea of how much you can afford for your new
home, the next step is to choose a neighborhood to live in and
the type of home you want to live in. You can find more information
on the subject at
What to Buy & Where to Live.
For more information about how VIP Realty can help you buy a home in Central Indiana, call Tammy Bookout at (317) 345 -
8269 or toll-free at 888-VIP-0002 (888-847-0002), or send
Tammy an e-mail, or submit the Request for Information form