Most homeowners make four housing-related payments each month: - Principal on a mortgage
- Interest on a mortgage
- Taxes on the real estate owned
- Insurance for the real estate owned
Collectively, these payments are known by the acronym PITI, but don't let it fool you -- a homeowner's monthly expenses are still called PITI even if one or more of the elements doesn't apply.
For example, a homeowner with an interest only mortgage does not pay principal each month.
Additionally, condo owners typically don't pay homeowners insurance -- they pay a monthly assessment and/or maintenance fees to an association instead.
But, regardless for what it stands, determining a comfortable PITI should be every homeowner's starting point when looking for a new home. PITI is the monthly housing cost, after all, and by knowing what fits in your budget, it's a lot easier to compare homes and their related expenses.
It's certainly better than asking the bank "how much home can I afford" -- all that's going to tell you is the P and the I. As a homeowner, you need to know all four.
PITI is most commonly pronounced pee-eye-tee-eye.
(Image courtesy: Contractor-Books.com)
