PITI is an acronym that stands for Principal, Interest, Taxes, and Insurance, which are the four basic elements of a monthly mortgage payment. PITI is a helpful tool used to estimate the full cost of owning a home, and it is arguably the most important set of letters you’ll come across during the mortgage lending process. Below are the components of PITI:

• Principal: This is the amount of money borrowed to purchase the home. It is the portion of the monthly payment that goes towards paying off the loan balance.

• Interest: This is the cost of borrowing money from the lender. It is the portion of the monthly payment that goes towards paying the interest on the loan.

• Taxes: This refers to property taxes that are assessed by the local government based on the value of the property. The taxes are usually paid through an escrow account that is set up by the lender.

• Insurance: This refers to homeowners insurance that protects the property against damage or loss. It is usually required by the lender and paid through an escrow account.

Lenders consider PITI when deciding whether to approve a mortgage loan. They use PITI to determine how much of a monthly payment a borrower can comfortably make. If the PITI payment exceeds a certain percentage of the borrowers income, lenders may be more reluctant to extend a home loan to them. It is important to understand the entire mortgage payment, including PITI, before buying a home. Borrowers can calculate their PITI with an online calculator or work with a lender to determine what PITI they can afford.