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In order to understand what's going on during your mortgage application process, you need to be familliar with certain terms. One term you're likely to hear is "mortgage PITI."

It's easy for potential homeowners to jump the gun and get into a mortgage they can't really afford. Using this mortgage calculator helps you avoid falling into that trap by giving you a more accurate idea of your monthly housing costs.

To help you prepare for owning your dream home, we've created this handy guide. Keep reading to learn all about PITI and why you should know what it means.


Why use a mortgage PITI calculator?

A mortgage calculator with PITI helps you estimate what your monthly mortgage payment will really will be. It's easy to make the mistake of thinking you only have to pay for the principal amount that was borrowed.

You'll need several pieces of information to fill out the calculator. This will include the mortgage amount, the loan term length, the interest rate, and your annual property tax amount.

While you could do the calculations on your own, this handy tool simplifies the process for you.

What is PITI?

PITI stands for the four things that make up your mortgage payment.

These four things combined create the total amount you'll owe toward your mortgage each month. It's important to realize that your payment will include more than just the cost of the house.

The PITI acronym stands for:

P - Principal

    The principal amount is the dollar amount borrowed from the lender. If you put any money toward the principal up front, that amount will be deducted, resulting in a new principal balance.

I - Interest

    Interest is the additional money paid to the lender for the use of the principal amount. The interest is determined by an interest rate. The rate you receive can be based on several factors.

T - Taxes

    When purchasing a home you'll be required to pay real estate or property taxes. This amount is included in your mortgage payment but is held in an escrow account.

    Your lender sends this money to your city or town directly when it's due.

I - Insurance

    You'll be required to pay homeowners insurance when you purchase your home. In some situations, you'll also need to pay private mortgage insurance (PMI).

    Insurance is also held in an escrow account and is sent by your lender to your insurance company.

How do I calculate my total PITI?

Your PITI will be different for each house you consider. You'll need to run a new calculation for each one. And a calculation that's true one day may not be the same the next day.

Why all the changes? Because the amount borrowed, the home's worth, the tax amount, and just about every other number varies from house to house.

To calculate your total PITI, you'll need to know your monthly principal, interest, tax, and insurance bills. Once you know those, you can add those numbers together to get your PITI.

Is HOA included in PITI?

HOA stands for "Homeowners Association." Some subdivisions, condominiums, or other setups require the payment of HOA fees.

Paying the HOA gets you membership within the association. It also helps to pay for the upkeep of common areas within the community. These payments are typically a few hundred dollars per month.

HOA fees are not included in PITI payments. These fees are a cost you'll have to cover in addition to your monthly PITI payments if you live in an area that requires you to pay them.

Is PMI added to PITI?

PMI, or Private Mortgage Insurance, may be added to your PITI amount if you're required to pay it.

Generally, if you put less than 20 percent down when you initiated the mortgage, you'll be required to pay PMI.

PMI protects the lender should you become unable to pay the amount back. The PMI you have to pay is divided up into monthly payments, like the rest of the payments that make up your PITI.

Are there housing costs besides PITI?

Your PITI will contain your entire mortgage monthly payment. However, as was mentioned when discussing HOA, there are other monthly fees you'll need to keep in mind.

When determining your budget for a mortgage, don't aim for the highest amount you can afford. Many other costs can be added to your PITI each month.

Owning a home requires a lot of money. There's not really a way around that.

Aside from your PITI and potential HOA fees, you'll need to pay closing costs, utilities, maintenance costs, and more. If there's any updating you want to do to the house, you'll need to have funds for that as well.

How can I keep my PITI low?

Since your PITI is calculated based on numbers that vary, you have some control over how large your PITI will be.

If you have bad credit, wait until it's better to apply for a mortgage. Doing so will get you a lower interest rate. This will help lower your PITI.

Compare property tax rates in areas you're interested in living. You may love an area that has relatively high taxes, but that will lead to a larger PITI.

Sticking to an area with lower property taxes will help lower your total PITI.

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