PITI, which is short for "principal, interest, taxes and insurance," is an essential term to know for anybody seeking a mortgage loan. The acronym refers to the relationship between these four numbers expressed in a ratio and can tell lenders about your financial status. Here is a breakdown of the term and why it matters to potential homeowners and borrowers:
Principal
The principal is the amount of a loan before adding any interest. When you make a down payment on a mortgage or loan, the amount is deducted from the principal. For example, if you make a 20% down payment on a $250,000 mortgage toward the principal, the remaining principal amount would be $200,000.
Interest
Interest rates are based on a percentage and represent the amount of money you will pay in addition to your principal amount. Interest rates are considered a fee for borrowing the money, as they go back to the lender as profit. The percentage may remain the same throughout the life of the loan, but the amount you pay will gradually decrease as the principal amount decreases.
Taxes
Property taxes support your local community and pay for things like emergency services, infrastructure maintenance and public schools. Property tax amounts vary from one location to another and can also change from year to year. To find out how much your property taxes are every year, you can find the value of your home through a professional appraisal.
Insurance
Homeowners insurance is not always required by mortgage lenders, but proof of coverage is a common condition of your loan. Insurance rates vary both by location and provider.
Knowing your PITI means knowing how large of a mortgage you can afford. It also means having a more in-depth awareness of your financial situation, making it possible to find the best opportunities and homes in your price range. Remember these key terms and keep them in mind when considering mortgage options and your home search.
Kimberly Kelly decided to get her real estate license when she moved to South Orange with her family and fell in love with the classic, period homes of the area. Having worked in the city for many years for LexisNexis, Kim understands the appeal of an easy commute to NYC. That’s why she specializes in towns along the Mid-Town Direct train line, offering welcoming communities, good schools, and space to grow.
Very active in her children’s school PTA, Kim knows firsthand how important a school system is to parents looking to make the move to the ‘burbs. She volunteers with fairs, fundraising, and other activities that bolster support for education. Kim also believes involvement in the greater community enriches us all and has sat on various boards & associations throughout the years.
Kim Kelly has lived many places throughout her life, from Pennsylvania to Oregon, but has found New Jersey to be the ideal place to raise her family and put down roots. She loves nothing more than helping others discover their special place as well. Kim’s extensive knowledge of the area, combined with her sense of community, offers clients a personalized guide to finding the right house - and town - to call home.
