What does the acronym PITI stand for in real estate?

The acronym PITI stands for Principal, Interest, Taxes, and Insurance. This term is essential in real estate, particularly when discussing mortgage payments.

Each component of PITI represents a crucial part of a homeowner's monthly financial obligation:

• Principal refers to the portion of the loan that goes towards paying down the original amount borrowed.

• Interest is the cost of borrowing money, calculated as a percentage of the outstanding principal balance.

• Taxes normally include property taxes that homeowners are required to pay to local governments based on the value of their property.

• Insurance usually pertains to homeowners' insurance, which protects the property against losses and liability claims.

Understanding PITI is fundamental for both buyers and lenders, as it provides a clear picture of the total monthly expenses associated with homeownership. It helps potential homeowners evaluate if they can afford a specific mortgage, ensuring that they consider all relevant financial commitments beyond just the loan payment itself.