What is PITI?

Loan Glossary: What Is PITI ?

It is important to know what terms mean when buying a home. Not knowing the answer to ” What is PITI ?” can be very expensive. There are lots of these specialized terms and it’s not reasonable for a buyer or seller to learn all of them. That is a tiny bit of the reason why it’s to your benefit to hire a real estate agent to help you get through the maze of specialized knowledge involved. There are still some terms that it’s especially good to become familiar with for your own benefit, though, and the PITI acronym is one of them. Following is an explanation of this term and the meaning of each letter.
P Stands for Principal

In loan terms, the principal is the actual amount of money that you are borrowing from the lending institution in order to purchase your new San Fernando Valley. This figure differs all the time depending on how much you put down on the home and how much you consequently borrow. The principal is almost always the biggest part of the PITI equation.

I Stands for Interest

Whenever you borrow or pay on credit, you pay an interest charge. This is the amount the lender receives as the price of loaning you the money you need, based on the time value of money. It is usually expressed in percentages but appears as a dollar amount. Depending on the deal you have, the interest rate can either stay at a constant percentage throughout the entire term of the loan or it can be variable, meaning it can be subject to change based on certain standard rates or factors.

T Stands for Taxes

Taxation is one of the certainties of life, and everyone is well aware of that. Taxes involved with owning real property typically go to local government jurisdictions like the city or county to pay for public services. The tax revenues collected from homeowners help local schools, recreational centers, emergency facilities and other public facilities serve the residents. The tax assessments are usually rolled into your monthly mortgage payment prorated. The lender pays the tax, after receiving it from you, to the taxing authority.

The Second I Stands for Insurance

You don’t want to have a home without being adequately insured. Your home is your biggest investment and a insurance policy is vital for your family’s well-being. There are various homeowner insurance policies that you can decide on. Your insurance choices also depend on how big a down payment you make on a home. If you make a down payment of less than 20% percent, lenders will require that you carry a certain kind of policy that assures they will get their money back if you go through a foreclosure. Any required insurance payments are usually rolled into your monthly mortgage payment as well.

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