17 Nov 2011
One of the terms that consumers hear frequently is PITI. PITI is just short hand for Principal, Interest, Taxes and Insurance. Put another way, this is the just the TOTAL monthly payment on the home that lenders consider for underwriting and most consumers use for budgeting their monthly housing expense.
Principal & Interest – This is the mortgage payment net of any taxes or other ancillary monthly charges associated with owning the home. For example, if you have a $300,000 mortgage at 4.5%, the principal and interest payment is $1520.06.
Taxes - Simply the property taxes on the unit. Property taxes in Chicago and metro area suburbs typically range from 1.5 to 2% of the purchase price. So the taxes on a $300,000 property in Chicago would be approximately $300,000 x 1.5%/12 or about $375/month.
Insurance - The insurance component of PITI really can stand for several different items:
- Mortgage Insurance: If you are paying private mortgage insurance on the loan, this is also included in PITI
- Condo Fees/HOA Fees: If the property you are buying or own has a monthly assessment for amenities, this is included in PITI
- Hazard Insurance: When you own a home, you must maintain insurance on the property. Owners of houses pay a seperate hazard insurance policy. Condo owners pay hazard insurance through their monthly assessment. However, condo owners also have what is known as a Ho6 policy which is a seperate policy from the one paid through their assessments covering the contents of their unit. This is also included in the PITI.
The summation of all these items is your PITI.