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When Making Your Home Purchase Budget Calculate PITI

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By : Roby Hicks    99 or more times read
When purchasing a property or investing on any item, it is essential that you know what your budget is. Identifying it will help you maximize the available resources. It will also help you assess how to pay for the said purchase. You have to remember that in order to have an accurate budget, you need to consider the relevant factors.

It is important that you know what factors to consider because this will help you derive the right budget for your purchase. You have to bear in mind that you will incur other expenses aside from the initial cost of the property. You need to pay for these costs as well. In this article, the different essential factors in determining a budget for the property purchase.

If a person decides to purchase a property, the first thing he will check is his monthly income and his savings. Although this is necessary, he should be able to check his credit score as well. The credit score has a huge impact on the amount he can borrow and the interest rate he has to pay. This makes it essential to check and repair his score first, if necessary. Aside from the credit score, he should also look into the different components of a mortgage loan.

You have to consider four major factors when budgeting for a home purchase. These are the principal, the interest, taxes and insurance or the PITI. You have to take the four factors in consideration because you will surely need to deal with them in the future. Below is a thorough discussion of each of the said components.

First, we have the principal. The principal is very important because this is the total amount due. The value is normally dependent to your credit score. This will be paid in the course of your mortgage’s life. For instance, you have a principal amount of $250,000. The value is set to be paid in 15 years. The amount indicated will be divided into 15 years. To make it more affordable, the payment of the principal amount will be monthly.

Another component is the interest. This is how the lenders earn. The interest is a predetermined rate. The lender will present the terms and the mode of payment to you. This usually depend on your credit score and the state of the market. The payment is included in the monthly mortgage. It is added to the principal amount. In order to save more, borrowers look for lenders with the least interest rate.

Another factor is the taxes. Keep in mind that you have to settle property taxes when you purchase a property. The rate is about 2% to 4%. The payment for this tax is normally done annually but you can arrange to make monthly payments.

We also have the insurance. This will be required if the down payment made is less than twenty percent of the value of the mortgage or property. You will need to acquire a Private Mortgage Insurance (PMI). A homeowner’s insurance may also be necessary.

Always consider the PITI when purchasing a property to ensure that you can afford the property.
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