A mortgage payment is composed of four distinct components collectively referred to as ‘PITI.’ These components are as follows: principal, interest, taxes, and insurance.

(P) Principal: This denotes the original amount you borrowed, excluding any interest. For instance, if you purchase a home for $400,000 with a 20% down payment, your principal loan balance would be $320,000.

(I) Interest: This represents the cost of borrowing the principal amount. Using the same example of a $320,000 loan with a 4% interest rate, your initial year’s interest payment would amount to $12,800.

(T) Taxes: These encompass property taxes mandated by your city and county government.

(I) Insurance: This encompasses homeowners insurance, and if applicable, premiums for private mortgage insurance (PMI) in the case of a conventional loan.

When gauging your potential budget for home purchasing, it’s crucial to factor in the entire PITI payment rather than solely concentrating on principal and interest. Neglecting to include taxes and insurance in your mortgage calculation could lead to an overestimation of your actual home buying budget.