PITI meaning: How to find your real monthly housing costs

What you’ll learn ✅

— What PITI is in real estate

— Why understanding PITI matters when deciding how much home you can afford

— How to calculate the total cost of PITI

— How to reduce PITI payments

When most people think about the cost of buying a home, they understandably focus on the mortgage. But the real monthly cost of homeownership is more complicated — and often higher — than new buyers anticipate. That’s because of something called PITI.

In this article, we’ll explain the meaning of PITI so you can calculate how much you’ll truly pay on your house. Plus, we’ll cover ways to reduce monthly costs on your dream home.

What’s PITI in real estate?

PITI stands for Principal, Interest, Taxes, and Insurance, which are the four major components that make up your total housing payment. This term represents the full amount you’ll owe each month — not just the loan repayment. 

Before you’re approved for a mortgage, lenders consider PITI to assess affordability and see if you qualify for a loan. Unfortunately, many buyers don’t understand the specifics of their home’s PITI, meaning they end up underestimating future expenses.

Calculating PITI gives you a comprehensive estimate of what your monthly obligation will actually be. Unfortunately, many homebuyers don’t know every element when doing their own estimates. Basic online calculations often only consider principal and interest, neglecting taxes and insurance.

Let’s break down each component of PITI individually so you know what goes into a calculation.

Principal

Principal is the amount you borrowed to buy your home. When you take out a mortgage, you borrow a lump sum of money from a lender — the principal is the base dollar amount, before interest.

For the first few years after you buy a house, principal makes up a smaller portion of your monthly mortgage payment because you must pay interest on the full loan amount. Over time, you’ll chip away at this, so the principal-to-interest balance shifts. This is called loan amortization, and it means more of each monthly payment goes directly to paying down the loan.

Interest

Interest is the price of borrowing money. Monthly interest payments represent the amount your lender is charging you for taking out a loan. Interest rates depend on a number of factors, including your credit score, the type of loan, and your chosen lender. 

Shop around before you lock in — a lower rate can dramatically reduce your PITI, as it lowers the total interest you pay over the life of your loan. As a digital lender, Better can offer ultra-competitive mortgage rates because our overhead costs are much lower compared to traditional lenders. Secure favorable terms, lower your monthly costs, and close faster.

...in as little as 3 minutes – no credit impact

Taxes

Your local government levies property taxes, and the amount varies significantly depending on the city, county, and state you live in. Governments typically bill these fees annually or semi-annually, but many lenders collect a portion of the payment from your monthly installments, hold it in an escrow account, and pay taxes on your behalf.

Insurance

The final component of PITI is insurance, which typically includes:

— Homeowners’ insurance: This protects your home and belongings against damage and theft. Like taxes, lenders typically divide your annual premium into monthly payments.

— Private mortgage insurance (PMI): If your down payment is less than 20%, your lender will likely require PMI — a type of insurance that protects the lender if you default on your loan. This cost varies depending on your credit score, loan type, and down payment size.

— Other specialized insurances: Depending on where you live, you might need specialized coverage, like flood or earthquake insurance.

Keep in mind that these premiums can change annually based on risk factors, claims history, or market conditions. 

Why does PITI matter?

Lenders use PITI numbers to assess your ability to repay a mortgage. It’s a major factor in qualification, helping providers determine your debt-to-income (DTI) ratio, which shows how much house you can afford based on income and existing debts. If your PITI is too high relative to your earnings, you might not qualify for your desired loan. 

When you know how to calculate PITI, you can plan for more of your housing-related expenses up front. This helps you make realistic decisions, create a feasible budget, and avoid unforeseen financial strain down the road.

How to calculate your PITI payment each month

Below is a practical step-by-step guide to help you estimate your PITI. 

1. Determine principle and interest

For this guide, we’ll use an example scenario. Say you’re buying a $400,000 home with a 10% down payment. We’ll assume a 30-year mortgage with a 6.5% fixed interest rate. Annual property taxes in the neighborhood are 1.2% of the home’s value, and homeowners insurance costs $1,800 per year. Since you’re putting less than 20% down, you’ll also have to pay for PMI.

Let’s calculate PITI, starting with the principal loan amount. Here’s an example:

— Your purchase price: $400,000

— Down payment (10%): $40,000

— Principal loan amount: $360,000

Next, estimate your monthly principal plus interest with an amortization calculator or a standard formula: 

M = P [ I(1 + I)N ] / [ (1 + I)N − 1]

— M = Monthly payment

— P = Principal amount

— I = Interest rate

— T = Term (in months)

In the example scenario, the principal plus interest comes out to approximately $2,275 per month.

2. Look into property taxes

Research the average tax rate for the area you’re buying in. Multiply the home’s assessed value by the local tax rate to estimate your annual property-tax burden. Then, divide by 12 to get your monthly payment amount.

In the example:

— Assessed property value: $400,000

— Annual taxes: 1.2% x $400,000 = $4,800

— Monthly taxes: $4,800 / 12 = $400 per month

3. Estimate insurance fees

Contact a homeowners insurance provider or use an online quote tool to get an estimate for your ZIP code. 

Policies typically range from $1,000–2,500 annually, but the home’s age, size, and features affect the premium you pay. Companies also consider details like your credit score and claims history.

Once you have an estimated annual premium, divide it by 12 to find your monthly cost. For example:

— Annual premium: $1,800

— Monthly costs: $1,800 / 12 = $150 per month

If PMI applies, lenders typically price it at 0.5–1.5% of the loan amount annually, but it depends on your credit and loan type. In the example, we’ll assume PMI is 0.8%:

— Annual PMI: 0.8% x $360,000 = $2,880

— Monthly PMI: $2,880 ÷ 12 = $240 per month

4. Add up all PITI components

Finally, add together all your totals to calculate your total PITI. In the example scenario, this will look something like this:

Your real monthly housing cost is higher than most standard mortgage calculators tell you. When you consider every aspect of PITI, the real monthly payment would be $3,065 — not just the $2,275 for principal and interest.

For a quick, comprehensive estimation, add up your numbers with Better’s mortgage calculator. It factors in every component and even lets you add anticipated utility costs and homeowners association fees for a deeper look at your monthly expenses.

How to reduce PITI

Some components of PITI are fixed or determined by local conditions, but there are strategies to help you reduce overall monthly costs. Here are a few tips:

— Refinance your loan: If market interest is lower than the rates on your existing mortgage, you might be able to lower your PITI by refinancing to a new loan.

— Improve your credit score: Raising your credit score enhances your buyer credibility, potentially lowering your interest rates.

— Shop lenders and compare rates: Not all mortgage providers offer the same PITI. Look for a digital lender like Better that provides competitive rates.

— Increase your down payment: A bigger down payment reduces your principal amount, and if it’s 20% or more, eliminates PMI.

— Appeal your property’s assessed value: Higher property values raise property taxes, increasing PITI. If you think your home was appraised too high, you might be able to appeal and lower your taxes.

Calculate your PITI and enjoy a Better buying experience

Understanding PITI lets you estimate real monthly costs and ensure your home matches your long-term financial goals. By evaluating each component, you’ll avoid surprises during closing and stay comfortable through the homebuying journey. If you’re ready to learn your PITI and start planning, contact Better.

Our 100% online platform offers clarity into a hectic process. Learn your affordability range, pick your dream home, and lock in competitive mortgage rates. Get pre-approved in as little as three minutes, and start chatting with our expert loan officers, so you can ask questions and stay confident from start to finish.

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FAQ

What does PITI mean in a mortgage payment?

A PITI payment is a homeowner’s total monthly mortgage payment, which includes principal, interest, taxes, and insurance.

What are some ways to lower your PITI payment?

You can lower PITI on a mortgage in various ways, such as refinancing for a lower interest rate, shopping for more favorable insurance, or increasing your down payment.