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Simple Real Estate Definitions : PITI

June 11th, 2008 categories: Indy Home Buyers, Real Estate Financing, Real Estate Terms

PITI stands for Principal, Interest, Taxes, and InsuranceMost homeowners make four housing-related payments each month:

  1. Principal on a mortgage
  2. Interest on a mortgage
  3. Taxes on the real estate owned
  4. Insurance for the real estate owned

Collectively, these payments are known by the acronym PITI but don’t let it fool you — a homeowner’s monthly expenses are still called PITI even if one or more of the elements doesn’t apply.

For example, a homeowner with an interest only mortgage does not pay principal each month. 

Additionally, condo owners typically don’t pay homeowners insurance — they pay a monthly assessment and/or maintenance fees to an association instead.

But regardless for what it stands, determining a comfortable PITI should be every homeowner’s starting point when looking for a new home.  PITI is the monthly housing cost, after all, and by knowing what fits in your budget, it’s a lot easier to compare homes and their related expenses.

Although you won’t hear it in PITI, the cost of Home Owner Association (HOA) fees will also be applied to your monthly housing cost by your lender. It should also be a consideration when budgeting your monthly expenses.

It’s certainly better than asking the bank “how much home can I afford” — all that’s going to tell you is the P and the I.  As a homeowner, you need to know all four.

PITI is most commonly pronounced pee-eye-tee-eye.

(Image courtesy: Contractor-Books.com)

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This entry was posted on Wednesday, June 11th, 2008 at 12:09 pm and is filed under Indy Home Buyers, Real Estate Financing, Real Estate Terms. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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