What borrowers should know about PITI & property taxes

by Mika Glass Ratnam 07/24/2022

PITI is an acronym for principal, interest, taxes and insurance. In real estate, it's used by lenders to estimate your qualifications for a mortgage. One of the key variables in the formula is property taxes, which vary by location and individual home. But how do property taxes affect your PITI ratio? Here is a basic explanation to help:

Property taxes & your home's value

Property taxes are calculated based on several variables. One of the variables is the value of your home, which can be more complicated than just the purchase price. A home's assessed value is the value decided by tax assessors and can be adjusted as often as once per year. Fair market value, however, is much more fluid and depends on the value of surrounding homes, the local economy and more.

In addition to home value, property taxes are determined by a local tax rate. You can find out your tax rate from your local tax assessor or municipality records online. Other factors like appraisal value can also affect your property taxes, especially if your professional appraisal is much higher or lower than the assessed amount.

Why taxes matter to lenders

Property taxes matter to lenders because they make up part of your PITI. This combination of numbers can help lenders determine your eligibility for a mortgage because it represents a large portion of your overall financial situation. Your property taxes combined with other expenses and your debt-to-income ratio allow lenders to determine how much money you can afford to borrow without risk to them.

Knowing your PITI can help you make more informed financial decisions when buying or refinancing a home. If you're interested in learning more, consulting a lender or tax professional is a great way to begin.

About the Author
Author

Mika Glass Ratnam

Hi, I'm Mika Glass and I'd love to assist you. I am like a house doctor or coach. Ready to celebrate your lifestyle with the right real estate for you. I try to understand your needs and see how best to make it happen. Whether you're in the research phase or you know exactly what you're looking for, you'll benefit from having a real estate professional by your side.

Clients come in with a variety of needs: new luxurious expansion, downsizing to a simpler home, relocation to be near ones children, a senior looking to enjoy the next phase of their lives, an empty nester wondering what to do next, or an investor looking for residential and commercial opportunities, a commercial investor looking to repurpose land to build homes or offices or find a new client. Even a student looking to buy a home and rent it out to friends rather than pay for a dorm. I'd be honored to put my real estate experience to work for you. Analytical, Proactive and Diligent, I will investigate and persevere till we find the right property. I collaborate with other professionals and keep educating myself on the new and latest laws and trends. I live in the Mid Peninsula, San Francisco Bay area but I connect with people worldwide.