Whether you are in the process of buying your first home, already in a home paying your mortgage, or shopping around for a new home, you may or may not know what PITI stands for. PITI is what decides your monthly mortgage payment. We decided to give you a break down of the acronym.
P= Principal: The amount of the total payment that goes to reduce the loan that month.
I=Interest: The amount paid that month for the use of the investor’s capital(money). Principal and interest payments are determined by the use of “mortgage factors” (monthly payment per thousand at a given rate over a pre-determined length of time.)
T=Taxes: Annual real estate taxes divided by 12= monthly tax. (Government loans require taxes to be paid monthly to the lender with the payment to protect their interest in the property).
I=(Homeowners) Insurance: Insurance paid annually to protect both the buyer and the lender against loss by fire, etc. With government loans, the lender will require that this be paid monthly (escrowed) to the lender to protect their interest in the property.
I=(Mortgage) Insurance: An insurance premium (PMI on conventional loans) paid by the buyer to protect the lender in the case of buyer default on the loan. Most lenders require this insurance on loans with a down payment less than 20%. FHA (MIP) and VA require mortgage insurance also. DVA refers to as “funding fee.”
We at Oak don’t expect you to be experts on this stuff because let’s face it, it isn’t an easy concept. That is why any of us here would be happy to answer any questions that you may have regarding this topic, or anything else for that matter!
Financial information from DF Institute, Inc.
