What is PITI in Your Home Loan Documentation?

Hey all – Here is another timely article from Joel McDonald, a real estate broker from Colorado, and owner of a large Boulder, Colorado, real estate firm. The PITI information is something you really need to know when p purchasing a home, particularly if you are a first time home buyer. Enjoy! Kent

Whenever you are involved with the purchase or sale of real property, there are many terms and definitions that you should know. Although it’s not practical for the average buyer or seller to learn them all, there are some that you should become familiar with for your own benefit and PITI is one of them. Here is a short explanation of the term.

P Is for Principal
The principal is the actual amount that you are borrowing from the lending institution in order to buy the property. This figure varies from one scenario to another depending on how much you put down on the home and how much you actually end up borrowing. The principal is almost always the biggest portion of the PITI total.

I Is for Interest
As with any transaction in which you borrow or pay over time, you are charged interest. This is the amount the lender earns from you as the price of loaning you the sum you need, based on the time value of money. It is expressed in percentages. Based on the terms you have, the interest rate can remain at a fixed percentage of the loaned amount for the entire term of the loan or it can vary, meaning it can be changed by published standard rates and other factors.

T Is for Taxes
Even when you are buying real estate, you can’t get away from paying taxes to Uncle Sam. Taxes on real estate typically go to local government jurisdictions to help education and infrastructure operate. The tax revenues collected from homeowners help medical facilities, recreational centers, local schools and other public facilities serve the residents. The taxes are usually included with your monthly mortgage payment and are prorated each month. The lender passes the tax share to your government authority.

The Other I Is for Insurance
You don’t want to own a home without being adequately insured. Your home is your largest investment and a good insurance policy is essential for your family’s protection. Depending on what your home is worth and where you live, there are various insurance policies from which you can select. The choices that are available to you will vary depending on how much you put down on a property. If you put down of less than 20 percent, lenders require that you buy a certain kind of policy that covers them so they get their money if something happens to your home or if you are foreclosed. Similar to the way it is with taxes, these payments are usually added in with your monthly mortgage payment as well.

This article was provided by Automated Homefinder, Colorado’s top Boulder real estate professionals.


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