When you purchase a home, you will take out a mortgage loan unless you are able to pay for the property outright. The term PITI, pronounced like pity, refers to all of the components of your monthly mortgage payment: principal, interest, taxes and insurance.
When you take on a mortgage loan, the principal refers the amount that will pay down the balance of the loan. The interest is the amount of money that you are charged for taking out the loan. In most cases, property taxes will be tied into your monthly payment as will your homeowner's insurance cost.
When a mortgage lender is deciding whether to offer a purchaser a loan, they will take PITI into consideration along with the borrower's credit score, income and debts. All of these things are used to help determine if a borrower will be able to afford a specific mortgage. If a lender feels that the borrower will not be able to afford monthly mortgage payments with all of these factors considered, the lender will deny the loan application.
Typically, a lender will consider a borrower to be safe if the PITI is equal to or less than 28% of the gross monthly income from all sources of employment.
If you have questions as to the type or amount of mortgage loan you may qualify for, spea with an experienced real estate agent. Your agent can help you determine if you qualify for a loan and, if not, what you may need to do to qualify in the future.