Derek Morgan
Derek Morgan
Home tax deduction
Derek Morgan
Derek Morgan

    What is PITI in real estate?

    Be wise in planning your next loan decision and learn what expenses make up that monthly payment you will be paying after closing on your mortgage and when deciding on what mortgage options to select looking for a new property. If you’re not sure on what makes up the mortgage payment or how to lower it, ask. You can change the outcome by offering to pay property taxes and insurance outside of the escrowed mortgage as well. Think of PITI before you begin the home-buying process as another set of terms to negotiate with your lender as you would when negotiating on a purchase contract and ask your lender to explain the pros and cons of the various options for your situation.

    Unfamiliar jargon and terminology that's used in real estate can make entering the housing industry more daunting than it needs to be. One of the most important acronyms you'll come across in your home-buying journey is PITI, which stands for Principal, Interest, Taxes, and Insurance. Here are the four components that make up a mortgage payment and what each one involves.

    P - Principal

    The principal is the amount of the loan itself. To keep the math simple, take a $100,000 mortgage: the principal is $100,000. Over time the amount you pay will be more than the initial principle. Your lender will provide an amortization schedule showing how much principal is paid-off each month after your monthly payment is applied to other items.

    I - Interest

    The lender earns their money based on interest paid on the loan or principle. Sometimes you can pay extra interest points to provide their profits early so they will sell you a loan that has a lower interest and lower monthly payment.. When you make your mortgage payments, a portion of that payment goes towards interest. It's important to know that in the early years of your loan, more of your payments will go towards interest than principal. However, as time goes on, the ratio gradually shifts, with more of your payments going towards paying down the principal. 

    T- Taxes

    Real estate taxes or property taxes are assessed by the local county government and are used to fund public services voted on by the community, such as schools, police forces, and fire departments. These taxes are calculated annually, and you may get to choose if you pay them directly or pay them in your monthly mortgage payments. The lender will collect these payments and hold them in escrow until the taxes are due. 

    I - Insurance

    There are two types of insurance that may be included in your mortgage payments. Property insurance, which protects your home and its contents from fire, theft, and other disasters. The second type of insurance is required if the down payment is often below 20%, in which case private mortgage insurance (PMI)  is mandatory. Depending on the size of your down payment you may also get to choose if you pay your property insurance directly to your insurance company or if it must be paid within your monthly mortgage payments. 

    What PITI Represents

    Well, because PITI represents the total monthly mortgage payment, it helps both the buyer and the lender determine the affordability of an individual mortgage. A lender will look at an applicant's PITI to determine if they represent a good risk for a home loan. Buyers can use PITI to decide if they can afford a particular property.

    In general, mortgage lenders prefer the PITI to be equal to or less than 28% of a borrower's gross monthly income. Consider this a calculation guideline the lender uses as a guideline on deciding what loan limits one qualifies for as a borrower.. In addition to this, PITI is also included in calculating a borrower's back-end ratio, which is the sum total of their monthly obligations against their gross income.

    Conclusion

    Be wise in planning your next loan decision and learn what expenses make up that monthly payment you will be paying after closing on your mortgage and when deciding on what mortgage options to select looking for a new property. If you’re not sure on what makes up the mortgage payment or how to lower it, ask. You can change the outcome by offering to pay property taxes and insurance outside of the escrowed mortgage as well. Think of PITI before you begin the home-buying process as another set of terms to negotiate with your lender as you would when negotiating on a purchase contract and ask your lender to explain the pros and cons of the various options for your situation.

    So remember, a home's total monthly mortgage payments are determined using the abbreviation PITI (Principle, Interest, Taxes and Insurance.) Both buyers and lenders should be aware of the entire payment when calculating mortgage payments. The PITI is ideally below 28% of the borrower's total monthly income, according to lenders. 

    If you're ready to buy a home, visit unrealestate.com and learn more about how we make buying your home simpler, faster, and more affordable than ever. Find listings near and far at unrealestate.com/search to find your dream home today.

    We'd love to hear your thoughts about this article and our blog. Let us know how we did by completing the Unreal Estate Blog Feedback Survey.

    Unreal Estate stacked logo

    About

    BuySellMortgageAgentsCompany

    Updated January 2023: By using this website, you agree to our Terms of Service, and Privacy Policy.

    ⁠Unreal Estate holds real estate brokerage licenses under the following names in multiple states and locations:
    Unreal Estate LLC (f/k/a USRealty.com, LLP)
    Unreal Estate LLC (f/k/a USRealty Brokerage Solutions, LLP)
    Unreal Estate Brokerage LLC
    Unreal Estate Inc. (f/k/a Abode Technologies, Inc. (dba USRealty.com))
    Main Office Location: 991 Hwy 22, Ste. 200, Bridgewater, NJ 08807
    California DRE #01527504
    New York § 442-H Standard Operating Procedures
    TREC: Info About Brokerage ServicesConsumer Protection Notice

    UNREAL ESTATE IS COMMITTED TO AND ABIDES BY THE FAIR HOUSING ACT AND EQUAL OPPORTUNITY ACT.

    If you are using a screen reader, or having trouble reading this website, please call Unreal Estate Customer Support for help at 1-866-534-3726 
    Open Monday – Friday 9:00 – 5:00 EST with the exception of holidays.

    *See Terms of Service for details.

    LinkedIn Social IconInstagram social iconFacebook social icontwitter social iconYoutube Social Icon

    © 2023 Unreal Estate Inc. All Rights Reserved.

    Unreal Estate certified trust badge
    LinkedIn Social IconInstagram social iconFacebook social icontwitter social iconYoutube Social Icon