So what is PITI? This is a common term
that you may have heard mortgage brokers and mortgage
bankers use a lot when they talk about your mortgage,
but do you really know what it means? PITI stands for
Principal, Interest, Taxes and Insurance. Those are the
main components that make up your mortgage payments.
With PITI, the principal is how you reduce your loan
balance, the interest is what you are paying for
borrowing the money, your taxes are your property taxes,
and you insurance is for your homeowners insurance to
protect your home. PITI means your total monthly
Your mortgage payment is made up of four components these include the following Principal, Interest, Taxes and Insurance. Some lenders require 2-3 months PITI reserves in order for your loan to be qualified.
For your mortgage broker to accurately quote your PITI payment you will need to supply them with an accurate property tax amount and home owners insurance premium cost. Without these exact numbers your mortgage broker has to speculate your tax and insurance amount based on local averages.
PITI (Principal, Interest, Taxes, and Insurance) is the abbreviation used to describe all the components of a mortgage payment. When you are quoted a payment when applying for a loan make sure it is not just the "PI" which is just principal and interest because then you will need to add on the monthly tax and insurance to get a true monthly cost.
Some borrowers may not wish to have their payment include PITI. When shopping a mortgage loan, it is advised that the borrower maintain a sound understanding of the monthly costs of taxes and insurance (The TI portion), and look only at the principal and interest (The PI portion) of the payment. This will avoid confusion between you and your loan officer or mortgage broker with respect to what you are actually paying on a monthly basis for your mortgage (PI)- which is really the only part of the PITI a loan professional is affecting.
When lenders require PITI reserves they may have seasoning requirements. This means the funds need to have been in place for a certain period of time such as 30 or 60 days. If they allow sourced funds, this means that the funds can come from anywhere and be deposited before close into a checking or savings account with no seasoning time required.
Although each lender's requirements on PITI reserves will vary, by their individual programs, some will allow the proceeds from a Cash Out Refinance to cover the PITI Reserve requirements.
Be very careful when comparing monthly mortgage payments. Ask to see the payments in writing from each mortgage professional that provides you a quote. This way you can compare PITI (Principal, Interest, Taxes, and Insurance) payments with everything right in front of you so that there is no confusion. Sometimes, one lender may quote you a payment and even have a homeowners association (if applicable) due worked into your monthly PITI payment and another lender may not. This is why you should always request for the payment quote in writing and request it be broken down so that you can see what your monthly payment will consist of to make sure you are comparing "apples to apples".
PITI is the payment your debt ratio is calculated off of.
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Information listed above is to be used for educational purposes only and is not guaranteed