What is P.I.T.I?

When you’re buying or selling a house, there are many terms that come up. Though your local REALTOR can guide you through much of the terminology, there are some terms that you should be familiar with, and PITI is one of them. You will see PITI associated with your loan documents and mortgage paperwork. The following is an explanation of the term and the meaning of each of its letters. 

P is for Principal
The principal is the total base amount of money that you are borrowing to buy your home. The principal is generally the biggest portion of the PITI figure.

I is for Interest
Whenever you borrow money or pay on credit, you have to pay an interest charge. The interest is usually calculated as a percentage and appears as an amount on the PITI breakdown. Depending on the deal you have, the interest rate can stay fixed for the term of the loan or it can be variable.

 T is for Taxes
Taxation is one of the eternal certainties of life! Taxes involved with home ownership typically go to governments at the local level to pay for public services. The tax amounts are typically included with the monthly mortgage prorated. The lender pays the tax on your behalf to the local government.

The other I is for Insurance
Your home is one of the biggest investments you will make, and a homeowner’s insurance policy is vital for your financial well-being. There are various policies from which you can select, but the choices available to you depend on how much money you put down on your property. If you make a down payment of less than 20%, lenders require that you purchase private mortgage insurance (PMI).  This protects the lender in the event of loan default or foreclosure. Similar to the way it is with taxes, these payments are generally added into your total mortgage payment.

Need more help?  Contact a local REALTOR!

Home Buyers Can Expect Higher FHA Fees

Home buyers who use a Federal Housing Administration-insured mortgage to purchase a home will soon be paying higher fees. In an effort to recoup some of its depleted reserves, which have suffered in recent years, and to encourage a return of more private capital to the housing market, the FHA will increase two types of fees that borrowers must pay.  

Beginning April 1, FHA will increase the annual mortgage insurance premium for all loans, bringing the total cost from 1.15 percent of the loan amount to 1.25 percent. Starting June 1, jumbo loan premiums (loans over $625,500) will see an additional increase of 0.25 percent of a percentage point, bringing the total premium costs up to 1.5 percent of the loan amount. FHA also announced it will raise a fee for the upfront mortgage premium by 0.75 of a percentage point, which will now total 1.75 percent of the loan amount. These new fees will also apply to homeowners who want to refinance their mortgage. 

Greater Louisville Association of Realtors® says that Realtors® are opposed to increasing any barriers to homeownership and the increased fees are an unfortunate result of the struggling housing market. “FHA has been and remains a critical tool in restoring the health of the housing market, and ensuring its safety and soundness is essential,” said Louise Miller, President of the Greater Louisville Association of Realtors®. “However, once the Mutual Mortgage Insurance Fund is stabilized, FHA should reduce premiums commensurate with risk.”

 The impact of the new fees would mean a higher monthly payment of approximately $14 per month for a typical borrower. For example, a buyer with a 3.5 percent down payment with a mortgage of $150,000 can now expect to pay an upfront mortgage premium of $2,625 compared to a previous premium of $1,725, which most people would wrap into their total mortgage amount.  

FHA has insured more than 37 million mortgages since its inception in 1934. Many first-time home buyers rely on FHA-insured loans to purchase a home, which only require 3.5 percent down payment and often have less stringent credit requirements. The National Association of Realtors® estimates that one-third of recent buyers purchased their homes with an FHA-insured mortgage.  

In recent years FHA’s reserves have suffered from the rising number of homeowners who have defaulted on their mortgages, as well as a continuing decline in home values. FHA maintains two reserve funds. The first provides reserves to cover each mortgage that’s insured for 30 years; the second is a congressionally required 2 percent reserve, which FHA draws on first to cover loses.  

The FHA expects to bring in about $1.25 billion through September 2013 with the increased fees. FHA also expects to receive an additional $1 billion from the recent $26 billion settlement among 49 attorneys general, the Obama administration and five of the biggest mortgage servicers.  

“FHA has long played a critical role in the nation’s housing finance system,” said Miller. “It has always been a leader in insuring safe, low down payment mortgages to responsible, qualified borrowers. It’s a shame the ongoing housing crisis has caused FHA to increase their fees, but Realtors® are confident that the market will recover and FHA’s reserves will stabilize.”