What is PITI???
Just like automobile insurance, most homeowners are required
to have an insurance policy on their property.
Sometimes this coverage is termed “hazard insurance.” Most of the time, however, it’s called
homeowners insurance. Homeowner’s
insurance policies cover incidents ranging from leaking roofs to catastrophic
damage done by storms. A key distinction
to make is that homeowners insurance is not Private Mortgage Insurance (PMI),
which is a policy to protect lenders against loss if a homeowner defaults,
generally required from homeowners making a down payment of less than 20%.
Homeowners insurance is required by mortgage lenders. The most important reason for this is that
your lender will want your home, their collateral, to be rebuilt in case of
catastrophe. With homeowners insurance
covering at least the cost of rebuilding the home both the lender and homeowner
are protected from disaster.
Homeowners with FHA, VA, or less than 20% equity are
required to “escrow” their homeowners insurance. “Escrowing” your homeowners insurance is
simply paying your insurance as part of your mortgage. Generally, escrowing your homeowners
insurance is optional if your mortgage is conventional (i.e. Fannie Mae or
Freddie Mac) and your down payment or your home equity is at least 20% of the
home’s value.
Homeowners insurance is the “I” in
PITI, which represents a homeowner’s total monthly housing
payment.
1.
Principal
is the money used to pay down the balance of the loan.
2.
Interest
is the charge you pay to the lender for the privilege of borrowing the money.
3.
Taxes
refer to the property taxes you pay as a homeowner.
4.
Insurance
refers to both your homeowners insurance and your PMI, if required.
For more information regarding homeowners insurance and other
mortgage topics,
contact myself or your local mortgage professional.
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