Generally lenders figure that the
buyer shouldn’t pay more than 28% of gross monthly
income for PITI, or 36% for both PITI and monthly
long-term debts such as car payments, credit card
payments, student loans, child support, and alimony
payments.
A monthly mortgage payment can contain several
components:
Principal
The original balance of money loaned. As the loan is
paid over time, the
principal is the remaining loan balance.
Interest
The charge for the use (loan) of money. The interest
rate remains constant
In a Fixed Rate Mortgage. The rate can vary
according to specified guidelines
over the life of an Adjustable Rate Mortgage (ARM)
Property Taxes
The county assessor charges property taxes based on
the value of your home.
Two tax installments are due each year. (March and
September)
Insurance
Protection against loss resulting from certain
hazards, such as theft or fire. The
standard policy pays replacement costs, minus
depreciation based on actual
cash value. You will need to obtain homeowners
insurance from your own
insurance agent.
Private Mortgage
Insurance (PMI)
Loans with smaller down payments involve greater
risk for the lender, who
requires protection in case the loan goes into
foreclosure. Without PMI,
lenders would be reluctant to offer loans with lower
down payments. Anything
less than 20% down payment usually requires PMI.
PITI
Principal-Interest-Tax-Insurance (PITI). Monthly
payments consist of the
principal and interest on the mortgage loan, as well
as property taxes and
homeowner’s insurance. These four are often
abbreviated as PITI
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