What is a PITI Payment vs. Standard Mortgage


WRITTEN BY: Mark Romero

UPDATED: JANUARY 24, 2023 | 3 MIN READ

PITI stands for Principal, Interest, Taxes, and Insurance. This is the total monthly payment for a home mortgage loan. PITI payments are often higher than standard mortgage payments because they include property taxes and homeowners insurance policies in addition to the principal and interest. Homeownership can be a minefield, so we’ve compiled a guide to PITI payments versus standard mortgages.

Defining PITI Payments

A PITI payment is a mortgage payment that includes the principal, interest, taxes, and insurance. Another name for a PITI payment is an amortization loan.

The acronym PITI stands for Principal Interest Taxes and Insurance. Usually, a PITI payment consists of the monthly mortgage payment plus all other costs associated with owning a home: property taxes, homeowners’ insurance premiums, and homeowners association (HOA) dues.

A standard mortgage is any type of home loan that requires you to make repayments monthly over the life of the loan to repay the debt over time.

DTI Explained

The debt-to-income ratio determines the amount of debt a person has versus their income. To calculate this ratio take the total monthly debt, such as credit card debt and student loans, and divide it by the gross monthly income.

The higher this ratio, the more likely the person will have trouble paying off debts. This is part of what companies use to determine the affordability of a mortgage.

Credit Score Explained

A credit score is a number based on your credit report. It’s like a grade that summarizes the information in your credit report. The higher the number, the better your credit.

The FICO system was created by a company called Fair Isaac Corporation (FIC), which has been around for decades. Its initial function was to predict how likely you are to repay a debt if you applied for a loan or other forms of financing, such as a mortgage or car loan.

A person’s FICO score can change over time because of changes in their credit history, such as paying off debts or opening new accounts with different types of balances on them (e.g., installment loans).

Mortgage Escrow Explained

The mortgage lender will typically require that borrowers pay their monthly mortgage into an escrow account and disburse those funds to pay for property taxes and homeowners insurance.

Parts of Your PITI Payment

PITI is an acronym for the four parts of your monthly mortgage payment: Principal, Interest, Taxes, and Insurance.

Interest, homeowners insurance, and property taxes contribute hundreds of dollars each month to your annual cost of ownership.

A mortgage amortization schedule is a detailed presentation of how much principal and interest apply to each payment over the loan term. The schedule will show you three things.

  • How many remaining payments
  • The total interest that has been paid
  • How much of your original principal balance has been paid

Your Principal Loan Payment

The principal is the amount of money you owe on your loan for your new home. For example, if a mortgage has a balance of $50,000, the principal amount is $50,000. That’s the total repayment cost that must be repaid in full when the mortgage expires.

Your Loan Interest Payments

Mortgage interest is a fee to the lender for borrowing money. They calculate the amount of interest as a percentage of the principal, the amount borrowed. The higher the interest rate, the more expensive borrowing money becomes.

Property Taxes

Real estate taxes are one of the most basic and common ways governments collect money. A property tax is a fee the property owner pays his or her local government based on the property’s value. Tax money is typically spent on public services such as public schools, parks, roads, and other municipal expenses. Your property tax rate will vary depending on where your home is located. The upfront cost can be very high. That’s why property taxes can be split into 12 monthly escrow payments.

Homeowners Insurance

Homeowners insurance will cover damage done to a person’s home and possessions in the case of a natural disaster. Unlike auto insurance, homeowners insurance is typically a lump sum instead of a monthly premium payment. With so many people living paycheck to paycheck and rising costs, it’s hard for some to pay their monthly premiums in one lump sum. That’s why splitting the payment into 12 monthly escrow payments can be helpful.

Mortgage Escrow Accounts Explained

Mortgages typically come with an escrow account requirement, and homeowners must pay property taxes, homeowners insurance, and other obligatory fees to this account.

A mortgage escrow account allows homeowners to pay all parts of their PITI payments to a single lender instead of issuing payments to insurance companies and tax collectors separately.

Conventional Home Loans

If a buyer’s down payment is less than 20% of the home’s value, they must set up an escrow account and make PITI payments. If your down payment is over 20%, you’re not required to set up an escrow account and make PITI payments, and you avoid PMI in most cases.

FHA Loans

An FHA-insured loan is a US Federal Housing Administration mortgage insurance-backed loan provided by any FHA-approved lenders, including banks, mortgage companies, and other approved financial institutions. All FHS loans require an escrow account.

VA Loans

An escrow account is not a requirement with VA loans. You can use your home’s equity to cover the down payment costs. This may be different if you’re trying to convince your lender or an insurance company that your home is safe to insure.

USDA Loans

People who live and own property in rural areas may qualify for a Department of Agriculture loan. These Rural Development Guaranteed Housing Loans, all require escrow accounts.

FAQs

Is PITI the same as a mortgage?

A mortgage is a loan people take to buy a house or property. PITI stands for Principal, Interest, Taxes, and Insurance.

They are the main components of mortgage payments, also known as monthly housing expenses. PITI can be calculated by multiplying the interest rate by the loan amount, then adding up the taxes and insurance rates.

What is included in a PITI payment?

PITI is a common acronym used when discussing a home loan’s monthly payments. This acronym is used to help people remember the different components of a monthly mortgage payment. The principal is the monthly mortgage payment, interest is the monthly interest payment, taxes is the property tax payment, and insurance is the home insurance payment.

What is a monthly PITI payment?

The monthly Principal, Interest, Taxes, and Insurance (PITI) is a term used to describe the total amount owed for a property each month. It includes payment for the principal mortgage loan, interest on the loan, property taxes, and homeowners insurance.

What is PITI in an FHA loan?

You can utilize the FHA website to search by county and learn the highest mortgage amount that’s available for FHA approval in your specific location. For example, the maximum mortgage amount currently permitted for a single-family house in Washington, DC, is $726,525. By working backward, you can use this to calculate the size of your monthly PITI calculation.

What is the difference between PITI and PMI?

PITI payments differ from PMI (private mortgage insurance). A PITI payment is an additional monthly payment most mortgage lenders require for borrowers who make a down payment of less than 20% of the value of their home. This type of payment covers the lender in case the borrower defaults on their loan and does not have enough equity in their home to cover it.

What is a PITI payment on a mortgage?

PITI payment stands for Principal, Interest, Taxes, and Insurance. It’s a monthly payment that includes the mortgage balance and all the other costs associated with owning a house. The PITI payment is one of the most important payments on your mortgage. It includes everything from interest to taxes to insurance. You pay PITI payments monthly until you pay your mortgage in full or refinance it with another lender.

What does PITI stand for?

The principal is the amount of money that you owe on your loan. Interest is the fee the lender charges for borrowing money. Taxes are property taxes that are paid to a government entity on an annual basis to maintain ownership rights over the property. Insurance covers the policyholder against damage or injury to property or people caused by accidents or disasters such as fire, theft, vandalism, and earthquakes.

What to Know About PITI Payments

The home-buying process is wrought with paperwork and contracts. It’s easy to be overwhelmed as a first-time homebuyer. Still, it’s just as important to understand everything being signed and agreed to. There are many unseen housing costs bundled into your PITI payments, and home insurance is one of them.

By filling out our online rate form, ensure you’re not overpaying for your home insurance. You receive rates from the top companies in your area.