PITI: Principal, Interest, Taxes and Insurance In regards to Home Loans
What is PITI?
Pronounced the same as pity, the acronym PITI is a common term when dealing with home loans. The letters in PITI stand for principal, interest, taxes, and insurance. The term, however is typically used as a blanket term that covers the monthly sum of the total debt service (principal and interest), homeowners insurance, property taxes, mortgage insurance, and homeowners association fees.
PITI is often used to illustrate to the borrower the total monthly cost of the home loan agreement that they are entering. For budgeting purposes, it is much more useful than the simpler calculation of only principal and interest.
PITI can also be used as a value for lenders to base reserve requests on. For example, some lenders require borrowers to be able to set aside two months worth of the applicable PITI in order to qualify for the loan in the first place, similar to the first and last month's rent that many landlords request of renters.