PITI stands for principal, interest, tax, and insurance. This is a term used by mortgage lenders that assess the borrowers’ ability to pay the mortgage principal, interest on the mortgage loan, taxes on property mortgaged, and finally the insurance premiums paid against the personal mortgage insurance.
The collective amount of principal, interest, tax, and premiums are then compared with the gross income of the borrower before the loan is approved. If the PITI covers more than 28% of the gross income per month, the lenders are reluctant to approve the loan. For example, Mr. Alex has a monthly gross income of $5000 and the PITI of a mortgage is $1395. The front end ratio will be 27.9% (1395/5000). This means the loan can be approved.
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