Knowing what your P.I.T.I. is can help you, as a buyer, more realistically set your search terms for a home - i.e the amount of house that you can afford based on the total amount you will have to pay each month.
For those of us in the real estate / mortgage business, we're very familiar with the acronym: P.I.T.I.
NO! It's not a healthy pocket bread.
A first-time buyer should know about this, and it's a handy, simple group of letters -- that could save you money and help with your monthly budget planning!
P.I.T.I = Principal, Interest, Taxes and Insurance.
Let's examine it all separately.
Principal: This is the total amount of money you will owe the bank for your loan. The "principal balance" of your loan is divided over the life of your loan AND there will be a monthly amount of principal that you will be obligated to pay back.
Interest: This is the "fee" . . . the interest amount that you agreed to pay the bank for the loan. If you have a 4.75% interest rate, you will have this amount calcuated as a per monthly amount.
NOTE: I might as well add that the bank 'amortizes' your loan. The principal balance is not really being reduced the first seven, or so, years of the life of your loan (if you have a 30 year fixed). You are paying the mortgage per month and the majority of that amount will be INTEREST. The banks have set this system up by design. There has been study after study done that buyers live in a home, on average, 7 years. So . . . the banks make their money with the interest on the loan.
Taxes: If we learned anything from the '70's and Superfly, there will be: taxes, death and trouble. Taxes are your propety taxes. These property taxes can be set up to be paid with your mortgage, and the yearly amount is divided by 12 months and can be added to your monthly mortgage payment. For me, I like having my taxes INCLUDED in the mortgage payment. I don't get a property tax bill around Thanksgiving!
Insurance: The property you are buying will need to be 'insured' for hazards. Do NOT confuse this "insurance" as Mortgage Insurance (that's something else). The lender will require that their investment be insured against hazards, such as: fire, wind, and what might be typical for your local area.
The TOTAL will be your P.I.T.I. monthly payment.
Be sure to ask your loan rep / banker / mortgage professional if the monthly payment they're quoting you is the P.I.T.I . . . the total amount of what you will be obligated to pay per month.
Some lenders / loan reps / bankers MAY just quote the P&I (Principal and Interest) and NOT include the Taxes and Insurance. These amounts WILL be due . . . and should be considered when you are establishing your MONTHLY BUDGET!
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~ Representing Buyers Since 1999 ~
Carla Muss-Jacobs, ABR, CEBA, e-PRO, Realtor(r)
Principal Broker/Owner
EBAPortland, LLC
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Courtesy of William James Walton, Sr. , Realtor, WEICHERT, REALTORS® - Briotti Group
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