What is PITI in Mortgage Lending?

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PITI is an acronym in mortgage lending that stands for principal, interest, taxes, and insurance. Estimating your monthly PITI payment can give you a more accurate idea of how much you can afford when buying a home.
Especially if it’s your first time buying a home, it’s easy to overlook the additional monthly costs of owning a house that go beyond the mortgage payment itself. In some cases, the extra costs that property taxes and insurance add onto your monthly mortgage payment might mean you can’t afford to borrow as much as you thought you could.
Figuring out your potential PITI costs might seem confusing, but it doesn’t have to be. Jerry, the super app that helps you save on home insurance, is here to break down what PITI means—and how you can use it to estimate your home ownership costs.
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What is PITI in lending?

PITI in lending is an acronym for the costs commonly included in certain loans like a conventional mortgage: principal, interest, taxes, and insurance.
For first-time homebuyers expecting to borrow a certain amount, the extra monthly costs of interest, taxes, and insurance that come along with a mortgage can often come as a surprise, causing many to reassess their budgets. 
When deciding whether to approve you for a certain mortgage amount, many lenders will calculate your estimated PITI costs as one of their qualifying factors. Mortgage lenders often like to see your PITI take up no more than 28% of your monthly income. 
For that reason, calculating your estimated PITI costs on your own ahead of time can make the process of qualifying for a mortgage easier. It also gives you a more realistic sense of what you can afford.
Here’s a more in-depth look at the components of PITI. 

Principal

Your principal balance is the amount you owe on your mortgage before any interest is applied.
If you planned to buy a house for $150,000 using a 20% down payment of $30,000, you’d need a mortgage of $120,000 to cover the rest of the purchase price. That amount you’re borrowing ($120,000) is your mortgage’s principal balance.

Interest 

If only paying back that principal was all you had to worry about when paying back a mortgage! But in return for doing their part in securing your new home, your lender is going to charge you a certain interest rate on that principal balance.
In addition to market conditions, your credit score will have a big impact on what kind of interest rate you might qualify for on a mortgage. The higher your credit score, the better your interest rate will usually be. The size of your down payment can affect your interest rate, too.
Calculating how much of your monthly payment will go toward interest can be tricky. Different mortgage options might accrue interest on your principal balance differently. 
Whether your interest rate is fixed (remains the same) or variable (changes based on defined criteria) will also affect how much you end up paying over the life of your loan, so read the terms and conditions of your mortgage carefully and ask your lender any questions you have.
Many lenders will set up what’s called an amortization schedule to establish a fixed monthly payment over the duration of your mortgage. During the initial years, your mortgage payments will primarily go toward interest, and as you get closer to paying off your loan, more and more of your payment will be applied to your principal balance.
If your 30-year $120,000 mortgage was approved with a fixed annual interest rate of 5%, you could expect to pay about $6,000 in interest over your first year of making mortgage payments. 
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Taxes

Property taxes are easy to forget about when estimating the cost of buying a house, but they can really make or break your ability to do so.
If you’re planning to have your lender pay property taxes on your behalf—which is often a requirement if your down payment is under 20%—they’ll likely be lumped in with your monthly mortgage costs. 
The portion of your payment that will go toward your property taxes will be held in an escrow account until the tax payment is due.
Even if you opt to pay property taxes on your own and they won’t become part of your mortgage payment, they’re still a cost you’ll want to factor in as you determine your home-buying budget.
What you’ll owe each year in property taxes and how they’re calculated can vary based on the city, county, and state you live in. Typically, you’ll see those funds used to support public schools, libraries, local infrastructure, special area projects, emergency services, and more.
It’s also important to note that property tax costs can vary over the years. If property taxes in your neighborhood rise, you could see your monthly mortgage payment go up as well. This can make keeping up with future mortgage payments increasingly difficult if you decide to borrow on the high end of your budget.

How to estimate your property taxes

To estimate your annual property tax costs, you’ll generally need to know your home’s assessed value (as determined by a local authority) and your levy or tax rate. 
Some municipalities will only tax a portion of your home’s value, while others will use the home’s value in full. If you’re not sure what yours is, you can check with your local tax assessor’s office.
Let’s say the housing market in your neighborhood is heating up, and the house you originally bought for $150,000 is worth more now. If your local tax assessor said your home’s value was $200,000 and your overall property tax rate was 1.3%, you would have to pay $2,600 per year in property taxes compared to $1,950 for the previous home value. 
Spread out over 12 months, that updated payment would come out to about $217 per month. That extra expense might come as a big shock if you weren’t expecting it!

Insurance

Before offering you a loan, mortgage lenders usually want to know that their investment will be protected, which is why they’ll almost always require that you have a minimum amount of home insurance coverage before confirming the deal. 
As with property taxes, it’s common for mortgage lenders to pay home insurance via an escrow account on your behalf. And like taxes, insurance costs can be subject to change over time (which makes the Jerry app a great tool for shopping around for lower rates!).
The cost of home insurance can vary widely based on a number of factors, including:
  • Where you live
  • Your home’s value and overall condition
  • Your marital status
  • Your previous claims history
As of July 2022, the national average cost of home insurance is about $1,700 per year, or about $141 per month.
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How to calculate your PITI mortgage lending payment

Wondering if you can afford that house you’ve had your eye on? Here are the steps you can take to estimate your own PITI mortgage lending payment:
  • Calculate your monthly principal and interest payment based on the length of the mortgage term (usually 15 or 30 years for a conventional mortgage) 
  • Calculate your property tax costs
  • Calculate your insurance payment
  • Add up the results of each to get your monthly PITI payment
Let’s look at an example!
If you wanted to buy a $200,000 house with a 20% down payment of $40,000, you’d need a mortgage of $160,000. Let’s say you were approved for a 30-year $160,000 mortgage with a fixed interest rate of 5%, leaving you with a monthly principal and interest payment of about $858 per month.
If your home’s value is assessed at $200,000 and your property tax rate is 1.5%, that’d come out to $3,000 per year in property taxes, or $250 per month
If your home insurance premium is locked in at the national average of about $1,700 for your first year, you could expect to pay about $141 per month toward home insurance. 
Add all these costs together, and you could be looking at a monthly PITI cost of about $1,250 per month
So, if you had a monthly income of $5,000, could you afford that $200,000 home? Based on the factors here, your PITI costs would take up 25% of your income, which stays within the 28% limit that many mortgage lenders look for.

Why does PITI matter?

Calculating your estimated monthly PITI payment can give you a more accurate sense of what kind of homes fall within your budget and whether the current climate is right for you to buy a house.

Other considerations

Still, there are plenty of other considerations to keep in mind when determining whether you can afford the costs that come with owning a home:
  • If you planned to pay less than 20% of your home’s purchase price as a down payment, you’ll also want to factor in your monthly private mortgage insurance (PMI) cost, too.
  • Depending on the neighborhood you choose to live in, you may also be responsible for monthly homeowners association (HOA) fees
  • Home ownership will come with additional recurring expenses for things like repairs, utilities, and more.

How to easily find home insurance

By now, you know that the cost of home insurance can have a huge impact on whether you’re able to afford a house. 
If you’re trying to qualify for a mortgage, you’re probably spending hours browsing for-sale listings, checking your credit report, and meeting with potential mortgage lenders. 
With the Jerry app, you can make finding affordable home insurance the one easy part of your home-buying process.
All you have to do is download the app, answer a few quick questions, and Jerry takes care of the rest—from contacting your insurance company to filling out paperwork. 
Jerry will even send you fresh quotes when your policy is up for renewal, making it that much easier to make sure you’re still getting a good deal—and keep your PITI payments right where you want them.
Jerry was wonderful! I used it for my auto and renters policies. I trusted it so much that I signed up my homeowners insurance under Jerry as well. All of the agents are amazingly nice and knowledgeable.” —Mary Y.
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FAQ

In mortgage lending, PITI is an acronym for the components that make up a mortgage payment: principal, insurance, taxes, and insurance. Calculating your monthly PITI costs can give you a better idea of what you might be able to afford when you’re planning to buy a house.

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