What is PITI?
PITI stands for Principal, Interest, Taxes, and Insurance — the four components that make up your total monthly mortgage payment. Lenders use PITI to determine whether you can afford a loan, and real estate investors use it to calculate the true cost of owning a property.
Many new investors make the mistake of only looking at the principal and interest payment when analyzing a deal. But taxes and insurance can add hundreds of dollars per month, and ignoring them leads to inaccurate cash flow projections. Always calculate your full PITI before making an offer.
PITI Breakdown
Principal is the portion of your payment that reduces the loan balance. Early in the loan, very little goes to principal — most goes to interest. Over time, the principal portion grows as the balance shrinks.
Interest is the cost of borrowing money. On a $200,000 loan at 7%, you pay approximately $1,164 in interest in the first month alone. This is the largest component of early mortgage payments.
Taxes vary significantly by location. States like Texas and Ohio have property tax rates of 1.5-2.5% of assessed value, while others like Hawaii are under 0.5%. Always verify actual tax amounts with the county assessor.
Insurance covers the structure and liability. For rental properties, expect to pay more than a primary residence policy. Flood zones and hurricane-prone areas add significant additional cost.
PITI for Real Estate Investors
For investors, PITI is the starting point for cash flow analysis. Your monthly cash flow equals: Rent - PITI - Operating Expenses (maintenance, vacancy, management). A positive number means the property generates income. A negative number means you are subsidizing the property each month.
Most experienced investors target a debt service coverage ratio (DSCR) of 1.25 or higher, meaning the property's net income is at least 25% more than the mortgage payment. This provides a buffer for unexpected expenses and vacancy.