Real Estate Tips

Ask any friend or family member that owns a home and they will share that it takes a bit of management to keep all the expenses under control. Let’s explore the concept of PITI and why it is vital to have a clear picture of how much your home is costing you each month.

Just What Is PITI, Anyway?

PITI is an acronym that stands for “principal, interest, taxes and insurance,” which are the four main components that make up your housing costs.

Principal – this is the amount that you are paying against the total amount that you borrowed when you purchased the home. For example, if you used a mortgage to cover $200,000 of the home’s purchase price, the remaining balance of that $200,000 is the principal. A part of your monthly mortgage payment goes to paying down the principal.

Interest – this is the extra cost that the lender charges for the service of lending you the principal amount. For most mortgages, you will see this expressed as an “interest rate” which is a small percent charged on the loan. A portion of your monthly mortgage payment goes to paying down the interest owed.

Taxes – tax costs are not included in your monthly mortgage payment, but will be added by your lender as part of your yearly expenses when calculating your debt-to-income ratio (see below). Property taxes and other assessments will need to be paid each year.

Insurance – this is the cost of insuring your mortgage and your home. Like taxes, your mortgage lender will typically include some insurance costs in your DTI ratio calculation.

How Lenders Use PITI

Many mortgage lenders use some form of PITI calculation when determining your debt-to-income ratio. This ratio helps the lender understand your ability to manage your monthly mortgage payments without being at risk of missing one. The lower the ratio, the more likely you can afford all your monthly expenses.

Don’t Forget Your Other Monthly Expenses

Finally, don’t forget that along with PITI you will have a variety of other monthly expenses that need to be budgeted for. Leave some space for utilities, repairs and other renovations that need to be made throughout the year.

Once you have the full picture of what is coming in and going out each month, managing your expenses is easy. When you are ready to discuss or apply for a mortgage, get in touch with us. Our friendly team of mortgage professionals is happy to help.

Are you starting to tire of paying your monthly rent to someone and never building any equity? Renting forever can be a significant pain, especially as you’re contributing to someone else’s financial well-being. The good news is that there are affordable real estate options out there for those investing in their first home. Below we will share a few excellent reasons why an apartment or condo might be the best choice for a first-time home buyer.

A Manageable Monthly Payment

In most markets across the country, condos and apartments are available at a significantly lower cost than a full-sized house. Buying a less-expensive home means that your monthly mortgage payments will, in turn, be lower. If you are single or a young professional trying to start a family, that extra money can be a massive boost to your monthly budget.

Note that while your monthly mortgage payment may be lower, you are still responsible for other maintenance and upkeep fees. The most common is known as a homeowners’ association fee, to which all condo owners in the same development contribute. These funds are used to upkeep the building or property as well as things like landscaping, a pool or gym, and other amenities.

A Smaller Down Payment

In the same vein, buying a less-expensive home also means that you can put a smaller down payment on it when you close the sale. In many cases you are required to place a certain percentage – typically 20 percent – down to avoid having to purchase private mortgage insurance. Having to commit less in your down payment leaves more money in the bank for other purposes.

An Excellent Future Investment Property

Don’t forget that when you are ready to upgrade and move into a larger house, you can keep a condo as a rental or investment property. Once your mortgage is paid off, you are only responsible for the monthly maintenance fees and taxes. So if you can rent the condo out to a tenant, you will have an excellent source of cash flow that can help to pay for your new home or fund other activities.

The above are just a few of the many reasons why a condo can be a great starter home for first-time buyers. To learn more about your mortgage options, contact us today. Our team is happy to help.