Northwest Professional Realty

Understanding the relationship between PITI & property taxes

by Northwest Professional Realty 06/06/2022

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

Northwest Professional Realty

Working in the small town that I have grown up in is very special to me. I am able to help family and friends through the sometimes difficult decisions associated with buying and selling Real Estate. I also have lots of information and history to help my new friends coming into this area. Whether you are a buyer, seller or just checking out our area I’d love for you to give me a call or e-mail. Have a great day!