Definition
PITI stands for Principal, Interest, Taxes, and Insurance. It’s a common shorthand for the all-in monthly housing payment on a mortgaged property. In underwriting, PITI helps you translate a purchase price and loan terms into a monthly payment that can be compared to rents, income, and operating costs.
What PITI Includes
Principal (P)
The portion of your mortgage payment that reduces the outstanding loan balance. Early in an amortizing loan, principal is usually smaller; later it becomes larger as interest declines.
Interest (I)
The cost of borrowing money, calculated on the remaining loan balance. Interest is typically the largest portion of early payments and decreases over time on an amortizing loan.
Taxes (T)
Property taxes assessed by local government. Lenders often collect taxes monthly into an escrow account and pay the bill when due.
Insurance (I)
Typically homeowners insurance (or hazard insurance). Like taxes, it is often escrowed monthly. For income property, the policy type and cost may differ (e.g., landlord policy).
What PITI Does Not Include
- HOA dues (sometimes the expanded shorthand is PITI + HOA).
- Mortgage insurance (PMI/MIP) if required by the loan structure.
- Utilities and ongoing repairs/maintenance.
- CapEx reserves (roof, parking lot, major mechanical replacements).
- Property management fees, leasing costs, or concessions.
How It’s Calculated
PITI is typically expressed as a monthly number:
- Monthly Principal + Interest: derived from loan amount, interest rate, and amortization schedule.
- Monthly Taxes = Annual property taxes ÷ 12
- Monthly Insurance = Annual insurance premium ÷ 12
Practical underwriting formula
- PITI (monthly) = (Monthly Principal + Interest) + (Annual Taxes ÷ 12) + (Annual Insurance ÷ 12)
Why It Matters
- Affordability: PITI is a baseline for what a borrower can carry relative to income.
- Cash flow: Investors compare PITI to rent and NOI to estimate debt burden and coverage.
- Stress testing: Higher taxes/insurance can create “payment creep†even if the rate is fixed.
- Escrow reality: Lenders may adjust escrow if taxes/insurance rise, increasing the monthly bill.
Example
A buyer’s monthly mortgage payment (principal + interest) is $2,350. Annual property taxes are $7,200, and annual insurance is $1,800.
- Monthly Taxes = 7,200 ÷ 12 = $600
- Monthly Insurance = 1,800 ÷ 12 = $150
- PITI = 2,350 + 600 + 150 = $3,100/month
That $3,100 is the all-in baseline payment before items like HOA dues, PMI, utilities, and repairs.
Common Pitfalls
- Underestimating taxes: reassessments after purchase can increase the tax bill.
- Insurance shocks: premiums can jump due to claims, replacement-cost inflation, or risk repricing.
- Confusing PITI with “total housing costâ€: missing HOA, PMI, or maintenance can break the model.
- Escrow swings: lender escrow analysis can create one-time shortages and higher future payments.