What is PITI in a mortgage? Principal, interest, taxes and insurance: the four parts of a monthly mortgage payment, and the figure lenders measure against income when deciding how much house you can afford.
Principal is the part of the payment that reduces the loan balance, and it is small at first and large at the end of a fixed-rate loan. Interest is the lender's charge on the outstanding balance, large at first. Taxes are the property tax, collected monthly by the servicer into an escrow account and paid to the county when due. Insurance is the homeowners policy, collected the same way, plus mortgage insurance where the down payment was under 20 percent. Together they are the payment on the statement, and where there is a homeowners association the dues sit beside them in the lender's arithmetic even though the servicer does not collect them.
Lenders qualify a borrower on PITI (plus HOA and mortgage insurance) as a share of gross income: the front-end ratio, commonly capped near 28 percent as a guideline, and the back-end ratio of all debts including PITI, capped at 43 to 45 percent for most conventional loans and higher with strong compensating factors. A payment calculator that shows only principal and interest understates the real figure by a quarter or more.
Principal and interest are fixed on a fixed-rate loan. Taxes and insurance are not, which is why the payment on a fixed mortgage still changes once a year when the servicer reconciles the escrow account.
A worked example
A $380,000 Las Vegas home with 10 percent down at 6.5 percent: principal and interest $2,162, property tax about $200, homeowners insurance $130, mortgage insurance $140, HOA $95. PITI is $2,632 and the lender's housing figure is $2,727. A calculator showing $2,162 is short by a fifth.
See all four parts on a real listing
Questions people ask
Does PITI include HOA fees?
Not by the letters, but lenders add HOA dues to PITI when they qualify a borrower, and so should a budget. The servicer does not collect them; the association bills them separately.
What percentage of income should PITI be?
The guideline is 28 percent of gross income, and lenders allow more when total debts stay under about 43 to 45 percent. Many households are comfortable only well under the guideline.