PITI Calculator (Principal, Interest, Taxes, Insurance)

PITI is the full monthly housing payment lenders use to qualify a mortgage applicant. It is NOT just the loan payment. The four components:

• P rincipal: portion of the payment that reduces the loan balance.
• I nterest: portion that pays the lender’s interest charge.
• T axes: 1/12 of annual property tax, escrowed if required.
• I nsurance: homeowners insurance (1/12 annual), plus PMI if required.

Lenders also include HOA dues in affordability ratios, sometimes calling the result “PITIA”, where the A is Association dues. Most calculators stick with PITI and ask you to add HOA separately.

Why PITI matters more than P&I. A $300,000 loan at 6.5% has P&I of $1,896/month. But the full PITI in a high-tax state can easily be $2,800+. Two years into the loan, the borrower discovers they cannot afford the house if they only thought about P&I. Lenders use the 28/36 rule:

• Front-end ratio: PITI should be ≤ 28% of gross monthly income
• Back-end ratio: PITI + all other monthly debt payments should be ≤ 36% of gross monthly income

The escrow account. Most lenders (especially conventional and FHA loans) escrow taxes and insurance. The borrower pays 1/12 of the annual amount monthly, the lender holds it, and pays the tax bill and insurance premium when due. Escrows can change annually as taxes and insurance premiums shift. The November statement frequently has surprise increases.

PMI (Private Mortgage Insurance). Required on conventional loans with less than 20% down payment. Roughly 0.3% to 1.5% of the loan balance annually, paid monthly. PMI rates depend on:

• LTV (loan-to-value): higher LTV = higher PMI
• Credit score: 740+ gets best rates; 680-739 mid-tier; below 680 expensive
• Loan term: 15-year typically lower PMI than 30-year
• Property type: investment properties pay more

PMI can be canceled when the loan reaches 80% LTV based on original purchase price (automatic at 78% by federal law). On new appraisal-based equity gains, you can request cancelation earlier.

FHA and VA loans differ. FHA has a Mortgage Insurance Premium (MIP) of 0.55-1.05% annually plus 1.75% upfront, and in most cases it lasts the life of the loan. VA loans charge a one-time funding fee of 0.5-3.6% and no monthly mortgage insurance at all, which is a substantial advantage for veterans.

Property tax variation. Effective property tax rates by state (highest to lowest):

• New Jersey: 2.21%
• Illinois: 2.05%
• Connecticut, New Hampshire, Texas: 1.7-1.9%
• US median: ~1.07%
• Hawaii, Alabama, Colorado: 0.27-0.41%

A $400K home in NJ vs NM has a $7,000+ annual property tax difference. PITI math is wildly different across states.

Worked example. $400,000 home, 10% down, 30-year fixed at 6.5%.

• Loan: $360,000
• P&I: $2,275.44/month
• Property tax at 1.2% a year: $400,000 × 1.2% = $4,800/year, so $400/month
• Homeowners insurance at $1,800/year: $150/month
• PMI at 0.5% of the loan, since this is 90% LTV: $360,000 × 0.5% ÷ 12 = $150/month
• Total PITI: $2,275.44 + 400 + 150 + 150 = $2,975.44/month

For a borrower on $9,000 monthly gross income that is a 33.1% front-end ratio, over the conventional 28% limit. It may still go through with compensating factors such as a high credit score or large cash reserves, but it is the point at which a lender starts asking questions.

Note what happens the moment PMI drops off at 80% LTV: the payment falls to $2,825 with no refinancing and no negotiation. That is worth knowing about before you assume the first number is permanent.

The “rate buy-down” interaction. Buying discount points cuts the I in PITI but not T or I (insurance). The break-even calculation should use P&I, not PITI, since taxes and insurance do not depend on the rate.

What PITI does not include. Maintenance (rule of thumb: 1% of home value annually), utilities, repairs, lawn care. True total cost of ownership is roughly PITI × 1.25 to 1.4 in long-run averages.