Principal, Interest, Taxes and Insurance (PITI)

Updated July 11, 2021

What Is PITI?

The sum total of a mortgage payment is comprised of principal, interest, taxes, and insurance (PITI). The amount of principal paid, interest paid, property taxes, and homeowners insurance is broken down on a monthly basis to determine what the borrower’s monthly outlay would be.

How Is PITI Used in Real Estate?

PITI is best used to gauge how much house a potential buyer can afford. Ideally, a borrower’s total mortgage payment should be equal to or less than 28% of the borrower’s gross monthly income.

Some mortgage companies do not require borrowers to escrow their insurance and property tax payments. In this case, the homeowner will make those payments directly to the insurance company and tax assessor.

However, when determining the kind of payment the potential buyer can afford, those payments will be annualized on a monthly basis and included in the PITI estimate.

How to Calculate PITI

The formula for calculating PITI is relatively simple: Simply divide the sum total of annual principal, interest, property taxes and insurance payments by 12.

The resulting number should represent 28% or less of the borrowers monthly gross income. The ratio of PITI to monthly gross income is the front end ratio.

PITI Example

If a borrower’s gross monthly income is $10,000 and PITI is $2,500, the front end ratio when PITI is applied is 25%, which is acceptable to most lenders.

When using a back end ratio, or total debt payments to monthly gross income, borrowers aim for 36% or less. If the same borrower has a credit card payment of $200, and a car note of $300, the back end ratio would be an acceptable 30%: (2,500 + 200 + 300)/10,000 = 30%.

Mortgage Calculator

Ready to buy a home? It's imperative to know what your monthly mortgage payment will be. Check out Investing Answer's handy mortgage calculator here.

 
Ask an Expert
All of our content is verified for accuracy by Rachel Siegel, CFA and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Principal, Interest, Taxes and Insurance (PITI).
Be the first to ask a question

If you have a question about Principal, Interest, Taxes and Insurance (PITI), then please ask Rachel.

Ask a question
Rachel Siegel, CFA
CFA logo

CFA Charterholder

Chartered Financial Analyst

Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.  Her prestigious background includes over 10 years creating professional financial certification exams and another 20 years of college-level teaching.

If you have a question about Principal, Interest, Taxes and Insurance (PITI), then please ask Rachel.

Ask a question Read more from Rachel
Rachel Siegel, CFA - profile
Ask an Expert about Principal, Interest, Taxes and Insurance (PITI)

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms