Monday, November 10, 2014

What is PITI?

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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