PITI (Principal, Interest, Taxes, Insurance)
PITI explained: what's included, what's not (HOA/maintenance), and why PITI matters for true housing cost.
What PITI includes
PITI is the sum of Principal + Interest + property Taxes + homeowners Insurance. It's the baseline monthly housing cost used in many affordability frameworks and is what lenders typically use to calculate your debt-to-income (DTI) ratio. Principal is the portion of your monthly payment that goes toward paying down the loan balance. Interest is the cost of borrowing money. Property taxes are assessed by your local government and can vary significantly by location—they're usually paid monthly through an escrow account. Homeowners insurance protects your property and is typically required by lenders. Together, these four components form your core monthly housing obligation.
What PITI does not include
PITI does not include several important costs that affect real affordability: HOA (Homeowners Association) dues, which can range from $50 to $1,000+ per month depending on amenities and location. Maintenance and repairs, which experts recommend budgeting 1-3% of home value annually (about $200-600/month for a $300,000 home). Utilities (electricity, gas, water, sewer, trash), which vary by region and home size but often add $200-400/month. Closing costs (one-time, but significant—typically 2-5% of home value). Private Mortgage Insurance (PMI) if your down payment is less than 20%. These omissions are why PITI alone isn't enough for true affordability planning—you need to add these costs to get your realistic monthly housing obligation.
How lenders use PITI
Lenders use PITI to calculate your housing debt-to-income (DTI) ratio, which is a key factor in mortgage approval. Most lenders prefer your housing DTI (PITI divided by gross monthly income) to be 28% or less, though some programs allow up to 31% or even 43% in certain cases. They also use PITI to determine your maximum loan amount—if you earn $6,000/month and the lender allows 28% DTI, your maximum PITI would be $1,680. From that, they subtract estimated taxes and insurance to determine how much principal and interest you can afford, which then determines your loan amount. This is why property taxes and insurance estimates are so important in the pre-approval process.
How to estimate PITI
To estimate PITI, you need four components: (1) Principal and Interest: Use a mortgage calculator with your loan amount, interest rate, and term. For a $300,000 loan at 6% for 30 years, P&I is about $1,799/month. (2) Property Taxes: Check the property's tax assessment or ask your realtor. Divide annual taxes by 12. If annual taxes are $6,000, monthly is $500. (3) Homeowners Insurance: Get quotes from insurance companies. Typical range is $1,200-2,400/year ($100-200/month) depending on location and coverage. (4) Add them together: $1,799 + $500 + $150 = $2,449/month PITI. Remember, taxes and insurance can increase over time, so your PITI isn't fixed even with a fixed-rate mortgage.
PITI vs total housing cost
PITI is the minimum monthly housing cost, but your total housing cost is higher. A realistic budget adds: PITI + HOA + Maintenance reserve (1-2% of home value annually) + Utilities. For a $300,000 home with $2,449 PITI, $200 HOA, $300 maintenance reserve, and $300 utilities, your total monthly housing cost is $3,249—about 33% more than PITI alone. This is why some financial advisors recommend keeping PITI below 25% of income, leaving room for these additional costs. If you only budget for PITI, you'll be house-poor and struggle to cover maintenance, repairs, and unexpected expenses.
Common mistakes
Common mistakes with PITI include: (1) Using PITI as your total housing budget—it's just the baseline, not the full cost. (2) Ignoring property tax increases—taxes can rise significantly, especially in areas with rapid appreciation. (3) Underestimating insurance—get actual quotes, don't guess. (4) Forgetting about escrow changes—if your lender underestimates taxes or insurance, your monthly payment will increase when escrow is recalculated. (5) Not accounting for HOA increases—HOA dues can rise, and special assessments can hit unexpectedly. (6) Using current PITI for long-term planning—taxes and insurance will increase, so your PITI will too, even with a fixed-rate mortgage.
Formula
PITI = Principal + Interest + (Annual Property Taxes / 12) + (Annual Homeowners Insurance / 12)Variables:
Worked Example
Scenario:
You're buying a $400,000 home with a $320,000 mortgage at 6% for 30 years. Annual property taxes are $8,000, and homeowners insurance is $1,800/year.
Steps:
- Calculate Principal & Interest: $320,000 loan at 6% for 30 years = $1,918/month
- Calculate monthly property taxes: $8,000 / 12 = $667/month
- Calculate monthly insurance: $1,800 / 12 = $150/month
- Add together: $1,918 + $667 + $150 = $2,735/month PITI
- For affordability: If you earn $10,000/month gross, PITI is 27.4% of income (within typical 28% guideline)
Result:
Your PITI is $2,735/month. But remember to add HOA ($200), maintenance reserve ($400), and utilities ($300) for a total housing cost of $3,635/month.
Interpretation:
PITI of $2,735 is manageable at 27.4% of $10,000 income, but your total housing cost of $3,635 is 36.4%—much higher. This is why you need to budget beyond PITI. Also, property taxes and insurance will increase over time, so your PITI isn't truly fixed.
Edge Cases & Special Situations
Escrow shortages
If your lender underestimates taxes or insurance, you'll face an escrow shortage. Your monthly payment will increase to cover the shortfall and build a buffer. This can add $100-300/month unexpectedly.
Property tax reassessments
After buying, your property may be reassessed at the purchase price, dramatically increasing taxes. A home assessed at $300,000 might be reassessed at $400,000 after sale, increasing annual taxes by $2,000-3,000.
Insurance rate increases
Homeowners insurance rates can spike after natural disasters or claims in your area. Your $1,800/year policy might jump to $2,400/year, adding $50/month to PITI.
No escrow accounts
Some loans (or if you put 20%+ down) don't require escrow. You pay taxes and insurance separately, usually twice yearly. Budget for these lump-sum payments separately from your mortgage payment.
Key Takeaways
PITI is the foundation of your monthly housing cost, but it's not the full picture. Use PITI to compare properties and get pre-approved, but always add HOA, maintenance reserve, and utilities to get your true monthly housing obligation. Remember that PITI can increase over time due to property tax reassessments and insurance rate changes, even with a fixed-rate mortgage. For long-term affordability, keep PITI below 25-28% of gross income, leaving room for these additional costs and unexpected increases. Never stretch to the maximum PITI a lender will approve—you'll be house-poor and vulnerable to rate increases, job loss, or unexpected expenses.