What is PITI? Understanding your financial situation
PITI, which is short for "principal, interest, taxes and insurance," is an essential term to know for anybody seeking a mortgage loan. The acronym refers to the relationship between these four numbers expressed in a ratio and can tell lenders about your financial status. Here is a breakdown of the term and why it matters to potential homeowners and borrowers:
Basic definitions
Principal
The principal is the amount of a loan before adding any interest. When you make a down payment on a mortgage or loan, the amount is deducted from the principal. For example, if you make a 20% down payment on a $250,000 mortgage toward the principal, the remaining principal amount would be $200,000.
Interest
Interest rates are based on a percentage and represent the amount of money you will pay in addition to your principal amount. Interest rates are considered a fee for borrowing the money, as they go back to the lender as profit. The percentage may remain the same throughout the life of the loan, but the amount you pay will gradually decrease as the principal amount decreases.
Taxes
Property taxes support your local community and pay for things like emergency services, infrastructure maintenance and public schools. Property tax amounts vary from one location to another and can also change from year to year. To find out how much your property taxes are every year, you can find the value of your home through a professional appraisal.
Insurance
Homeowners insurance is not always required by mortgage lenders, but proof of coverage is a common condition of your loan. Insurance rates vary both by location and provider.
Why does PITI matter?
Knowing your PITI means knowing how large of a mortgage you can afford. It also means having a more in-depth awareness of your financial situation, making it possible to find the best opportunities and homes in your price range. Remember these key terms and keep them in mind when considering mortgage options and your home search.
About the Author
Cheryl Pendenza - Realtor®/Broker Associate
Bringing more than 30 years of experience to the table, Cheryl has a paralegal degree, banking background, and is a member of many professional, civic, and community organizations.
Qualified • Experienced • Skilled
"As a full-time REALTOR®, I am dedicated to providing my clients with a high level of service by building relationships, marketing, and negotiating on their behalf. As a homeowner, I realize how important homeownership is.
Cheryl brings warmth and compassion to her client relationships and referrals have become the backbone of her business. "I’m grateful for every referral and welcome the opportunity to help clients achieve their real estate goals.”
Cheryl Pendenza, Broker Associate affiliated with RE/MAX Andrew Realty Services since 1999 is a local businesswoman and formidable negotiator who can help you achieve your real estate goals. Supporting family, community and local business is important to Cheryl and she can often be found at one of the local restaurants, shops, or galleries.
