Quick definition — What does "PITI" mean in real estate?
PITI is an acronym used in real estate that stands for Principal, Interest, Taxes, and Insurance. Together these four items usually make up a homeowner’s monthly mortgage payment. Asking “what does PITI mean in real estate?” is a smart first step because PITI shows the full recurring cost of owning a home—not just your loan repayment.
Breaking down each component of PITI
- Principal — The portion of the payment that reduces the original loan balance.
- Interest — The lender’s charge for borrowing the money.
- Taxes — Local property taxes assessed by your county or municipality; collected monthly in many mortgages.
- Insurance — Homeowners insurance that covers damage to the property, plus sometimes PMI (private mortgage insurance) if your down payment is under 20%.
How lenders use PITI — affordability and underwriting
Lenders compare your projected PITI to your income when deciding how much they’ll lend. A commonly used guideline is the 28% rule: your PITI should generally be no more than about 28% of gross monthly income. Staying near or below that threshold improves your chances of loan approval and helps ensure payments are manageable alongside other monthly obligations.
Worked examples of PITI
Example 1 — Chicago condo (realistic breakdown)
Buying a $350,000 condo with 5% down and a 30-year fixed rate at 7%:
- Loan amount: $332,500
- Principal & Interest (P&I): ≈ $2,212/month
- Property taxes (2% annually): $7,000/year → $583/month
- Insurance: $1,200/year → $100/month
- PMI: $150/month (down payment < 20%)
Total PITI ≈ $2,212 + $583 + $100 + $150 = $3,045/month. If household gross income is $10,000/month, that equals about 30.5% of income—above the 28% guideline and potentially affecting loan terms.
Example 2 — National average scenario
$350,000 home with 20% down (loan $280,000) at 6.4%:
- P&I: $1,751/month
- Taxes: $247/month (national median)
- Insurance: $233/month (national average)
Total PITI ≈ $2,231/month. On $8,000/month gross income this equals 28%—right at the guideline for housing affordability.
Example 3 — Location matters
Property taxes and insurance vary widely. Low-tax states can keep PITI low; high-tax counties can push PITI much higher with the same loan amount. Always check local tax rates and insurance premiums or ask the seller for recent bills for the most accurate estimate.
Why understanding PITI matters
- Budgeting: PITI reveals your expected monthly housing cost so you can shop within your means.
- Loan approval: Lenders use PITI to calculate debt-to-income ratios and whether you’ll need PMI or other conditions.
- Total cost of ownership: PITI gives a fuller picture than principal-only numbers, but remember it doesn’t include everything (see below).
Additional considerations beyond PITI
- Escrow accounts: Many lenders collect taxes and insurance monthly into an escrow account and pay bills on your behalf.
- Changing costs: Property taxes and insurance premiums can rise, so PITI may increase over time.
- Other homeowner expenses: HOA fees, maintenance, utilities and repairs are not part of PITI but affect affordability—don’t overlook them.
Practical tips for buyers calculating PITI
- Use online mortgage calculators (lender sites or tools like Redfin/LendingTree) to estimate PITI quickly.
- Ask the seller for actual tax and insurance bills to replace estimates with real numbers.
- Plan for increases in taxes or insurance, especially in areas prone to natural disasters or frequent reassessments.
- Factor in non-PITI costs (HOA, maintenance, utilities) when determining what you can truly afford.
Bottom line
PITI (Principal, Interest, Taxes, Insurance) is the standard way lenders and buyers measure the monthly cost of a mortgage. Calculating PITI early helps you set realistic budgets, compare loan offers, and avoid surprises after closing. Combine PITI with other ownership costs to get a complete picture of what homeownership will cost you each month.
