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First time homeowners are often puzzled by the slew of new terminology that comes with buying a home. In addition to the stress of a huge financial transaction, you're now suddenly feeling like you're back in school, having to memorize a long list of acronyms and real estate terms. Don't worry. You're not the only one - believe me, we've all been there at some point.

Many of the terms you come across you probably won't have to worry about much. Some, on the other hand, are important for you to understand. One such term is PITI.

PITI (pronouced like 'pity') refers to the four components of your monthly mortgage payment: Principal, Interest, Taxes and Insurance. In other words, PITI is the sum of your monthly loan service (principal and interest) plus the monthly property tax payment, and homeowners insurance premium. If you are also required to pay private mortgage insurance (PMI), this too can be added in to your monthly mortgage payment.

So does this mean homeowners make four separate payments for these services? Generally, no. Most homeowners escrow these costs into their loan. That is, they agree to let their mortgage servicer collect the funds for their real estate taxes and insurance policies in equal monthly installments and then make the payments as they are due. That way, they only need to write one check or make a single payment to their loan holder each month. There is a benefit to the mortgage bank as well - they can be sure that the tax and insurance bills will be paid in full and on time which protects their interest in the property.

For more information on PITI, talk to an experienced mortgage consultant in your area. Don't be afraid to ask questions, especially if you are a first-time home buyer!

Source: http://mortgage-rate-review.blogspot.com/2012/07/mortgage-terminology-piti-definition.html

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