The Language
of Lenders: They All Have PITI
Whether you're
selling or buying real property, there are many terms that come up in
the course of the rransaction. It can be a little annoying, and there
are hundreds of these specialized terms and it doesn't seem feasible
for a seller or buyer to learn them all. It's not impossibly hard, really,
especially if you are working with a real estate agent to be on top
of everything. There are some terms that you should know for your own
benefit, though, and PITI is one. Following is an explanation of the
term and what each letter means.
P Stands
for Principal
The "principal" is the actual amount of money that you are
borrowing in order to buy the property. This figure will vary all the
time at the same home price based on how much you put down on the home
and how much you consequently end up borrowing. The principal is almost
always the largest part of the PITI equation.
I Stands
for Interest
As with anytime that you borrow money or pay on credit, you have to
pay interest. This is how much the lender gets from you in order to
loan you money, based on the time value of money. It's usually expressed
as a percentage. Depending on the deal you agree on, the interest rate
can either stay at a fixed percentage of the amount of the loan throughout
the full term of the loan or it can be variable, meaning it will be
changed from time to time by published standard market rates and other
factors.
T Stands
for Taxes
Taxes are one of the things you can depend on in life. Taxes involved
with home ownership go to local governments like the city or county
to help education and infrastructure operate. The tax dollars from homeowners
help senior centers, neighborhood schools, medical facilities and other
facilities serve local residents. The taxes are typically added into
your monthly mortgage payment and they are prorated each month. The
lender pays the tax on your behalf to the taxing agency.
The Second
I Stands for Insurance
You wouldn't want to own a home without adequate insurance. Your home
is your biggest investment and a good policy is essential for your family's
protection against disaster. Depending on what your home is worth and
where you live, there are many kinds of insurance policies that you
can decide on. The choices that may be available to you will vary based
on how much of a down payment you make on the property. If you put down
of less than 20 percent, lenders will require you to buy a certain policy
that covers them so they will get their money if you go into foreclosure.
Similar to taxes, these payments are usually added into your mortgage
payment as well.
Content presented
through Automated Homefinder, Colorado's best Boulder
Real Estate specialists.
