What does the acronym PITI stand for in real estate financing?

The acronym PITI stands for Principal, Interest, Taxes, and Insurance, which are the four key components of a monthly mortgage payment. Understanding PITI is crucial for both homeowners and real estate professionals, as it reflects the total amount that a borrower must pay each month for their mortgage loan.

Principal refers to the portion of the payment that goes toward reducing the original amount borrowed. Interest is the cost of borrowing that principal, which lenders charge as a fee for extending credit. Taxes generally refer to property taxes that are assessed by the local government, which can vary based on property value, location, and local tax rates. Insurance often refers to homeowners insurance, which protects the property against damage and loss, and may also include mortgage insurance if the borrower put down less than 20% of the home's value.

Together, these components represent the full financial obligation a homeowner takes on with a mortgage and are crucial for budgeting and financial planning. This understanding helps borrowers to assess their affordability when seeking financing options for purchasing a home.