BlueSky FI

PITI stands for Principal, Interest, Taxes, and Insurance — the four components that make up your total monthly mortgage payment. Lenders use your full PITI payment (not just the loan portion) to decide how much you can borrow, so knowing this number gives you a realistic picture of what homeownership actually costs each month.

Private Mortgage Insurance (PMI) is an extra monthly fee lenders charge when your down payment is less than 20% of the home price. It typically costs 0.5% to 1% of the loan amount per year. You can request PMI removal once you reach 20% equity, and your lender must automatically cancel it when you hit 22% equity.

Most lenders prefer your total monthly debt payments (including your new mortgage) to stay below 43% of your gross monthly income, though many aim for 36% or lower. A lower DTI ratio not only makes it easier to qualify but also leaves you more financial breathing room for unexpected expenses.

Even small extra payments applied to your principal can save you tens of thousands in interest and shave years off your loan. This works because each dollar of extra principal paid today reduces the balance that accrues interest for the entire remaining life of the loan, creating a compounding savings effect.

A fixed-rate mortgage locks your interest rate for the entire loan term, giving you predictable payments. An adjustable-rate mortgage (ARM) starts with a lower rate for an introductory period (often 5 or 7 years) and then adjusts periodically based on market conditions, which means your payment could go up or down.