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PITI – Know Your Real Payment Before You Shop

PITI stands for Principal, Interest, Taxes and Insurance.  It is what most mortgage payments end up incorporating, as the lender is placing money into escrow to pay your taxes and insurance when due.  Our love of the Internet, and its ability to provide fast answers to our information needs can give some home buyers a lower payment than they will actually be making on their home.

The PI, or Principal and Interest part of the loan is straight mathematics, so that's what the online mortgage calculators deal with.  When you enter a loan amount of $240,000, and a fixed 30 year interest rate of 6%, you come up with a montly payment amount of $1439, which is PI.  However, if you have an annual tax bill of $2400, and your homeowner insurance is $1200, this adds $300 to your monthly payment, making it $1739.  That's a significant difference for your PITI payment.

So, before you start selecting homes to investigate, get your financial information in order, so that you can select the appropriate price range that you can afford.  Get your local real estate tax base information, how they assess a home's value, and calculate the approximate tax on your anticipated price range.  Get a quote from a home insurer for the same price range and size of home.  With these two annual costs, you can then add the monthly amount to the online mortgage calculator's result.

When it comes to tax valuation, you'll find differing methods, so be sure you know how the county determines the value of the home, and what rate they apply to the assessed value.  Many areas take a stated percentage of the retail value, say one-third to two-thirds, and base their rate on that amount.  Others use very different methods.  There could also be other local taxes applied, such as special assessments or school taxes, so get them all.

Or, contact a mortgage professional, and we'll help you to determine the home you can afford, with all of the variables involved.  It's a far better approach than relying on online solutions or part time brokers.

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