Question:

What is the real estate PITI payment?

Answer:

The real estate PITI payment is what a borrower pays in relation to their mortgage. The real estate PITI payment comprises of principal, interest, property taxes and homeowners insurance.

The principal and interest (PI) portion of the PITI is easy to calculate upon knowing the loan amount and interest rate. The taxes and insurance (TI) part may not be precisely calculated before closing. Also, taxes and insurance depend on area and they are usually once or twice a year.

To make sure that taxes and insurance are paid on time for the real estate collateral to be protected, as the first mortgage comes subordinate to tax liens, lenders usually set up an escrow account. The homebuyer usually owes several months of tax and insurance payments set in the escrow at closing. The amount held in the escrow account cannot exceed a two-month cushion as per Section 10 of the Real Estate Settlement Procedures Act (RESPA).

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