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Simple English definitions for legal terms
PITI
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A quick definition of PITI:
Term: PITI
Definition: PITI stands for the four main expenses that make up a mortgage payment: principal (the amount borrowed), interest, property taxes, and homeowners' and private mortgage insurance. This total amount is usually quoted on a monthly basis and helps determine if a mortgage is affordable. Lenders prefer the PITI to be 28% or less of a borrower's gross monthly income.
A more thorough explanation:
Definition: PITI is an abbreviation for the four major expenses that make up a mortgage payment: principal, interest, taxes, and insurance. These expenses are combined to determine the total amount of the mortgage payment, which is usually quoted on a monthly basis. PITI is an important factor in determining the affordability of a mortgage, and lenders generally prefer it to be equal to or less than 28% of a borrower's gross monthly income.
Example: Let's say you take out a mortgage to buy a house. Your monthly mortgage payment is $1,500. Of that amount, $1,000 goes towards paying off the principal and interest on the loan, while the remaining $500 covers property taxes and homeowners' insurance. This $500 is the PITI portion of your mortgage payment.
Explanation: The example illustrates how PITI is calculated as a portion of the total mortgage payment. In this case, the PITI is 33% of the total payment, which is higher than the recommended 28%. This means that the borrower may have difficulty affording the mortgage and may need to consider a lower-priced home or a larger down payment.