What does the acronym PITI stand for in relation to monthly housing expenses?

PITI stands for Principal, Interest, Taxes, and Insurance, which are the four key components that make up a borrower's monthly mortgage payment.

The principal is the portion of the payment that goes toward reducing the loan balance. Interest is the cost of borrowing the money, calculated as a percentage of the outstanding loan amount. Taxes usually refer to property taxes that homeowners must pay to local governments, which can vary significantly depending on the location of the property. Finally, insurance is typically the homeowner's insurance, which protects the property against damages and liabilities, and may also include mortgage insurance if the down payment is less than 20% of the home's value.

Understanding PITI is essential for mortgage loan officers, as it provides a comprehensive view of the total fixed monthly costs associated with homeownership. This knowledge helps both loan officers and prospective homeowners evaluate affordability and make informed financial decisions.