In a World Without PITI, Could You Buy a Home?

Dealing with the sale or purchase of real property, there are many terms that come up in the course of the transaction. It can be annoying, and there are lots of these specialized terms. It's not generally feasible for a casual buyer or seller to learn them all. However, there are some words and abbreviations that you should become familiar with for your own benefit and the PITI acronym is one of them. Following is an explanation of the term and of each of its letters.

P Means Principal
In real estate terms, the "principal" is the actual amount that you are borrowing from the lender in order to purchase a home. This figure will vary from one scenario to another even at the same price depending on how large a down payment you make on the home and how much you actually end up borrowing. The principal is usually the largest portion of the PITI total amount.

I Means Interest
Whenever you borrow money or pay on credit, you pay an interest charge. This is how much the lender gets as the price of loaning you money, based on the time value of money. It is calculated in percentages. Based on the type of loan you have, the interest rate can remain fixed throughout the term of the loan or it can vary, meaning it can be affected by published standard rates and other factors.

T Means Taxes
Even when buying a home, you can't avoid paying your taxes. Taxes on real estate, though, go to governments at the local level to help local education and infrastructure operate. The tax revenues collected from homeowners help rec centers, hospitals, local schools and other public facilities serve the residents. The taxes are usually added in with the monthly mortgage payment prorated. The lender passes the tax share to the appropriate government authority.

The Other I Means Insurance
It would be a mistake to have a home without having being adequately insured. This is your largest investment and a homeowners insurance policy is vital for your financial well-being. Depending on what the home is worth and where you live, there are various policies from which you can select what is best for you, which is more than we can cover in this article. The options that are available to you will vary depending on how much you put down on the home. If you put down of less than 20 percent, lenders require you to buy a certain kind of policy that covers them so they get their money if you go into foreclosure. These payments are usually rolled into the total mortgage payment as well.

It turns out, as you can see, that PITI is what we need to buy a home and pay the mortgage. For anyone who needs a loan to buy that dream home, it's good that there's PITI in the world.

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