Real Estate Finance Terms: What Exactly Does PITI Mean?

Regardless of whether you are dealing with the purchase or sale of real property, there are many terms that come up. You might say the language of finance and lending is an art in itself. There are hundreds of these special terms and it's not reasonable for a seller or buyer to learn all of them. However, there are some words or abbreviations that it's especially good to become familiar with for your own benefit, and PITI is one. Following is an explanation of the term and of each letter.

Principal
The principal is the actual amount of money that you are borrowing from the lender in order to buy the home. This figure differs all the time at the same home price depending on how large a down payment you make on the home and how much money you actually borrow from the lender. The principal is generally the biggest portion of the PITI equation.

Interest
Whenever you borrow money or pay on credit, you pay interest. This is the amount the lender earns from you as the price of loaning you the money you need, based on the cost of keeping the money from being invested anywhere else. It's calculated in percentages. Depending on the terms you agree on, the interest rate can stay fixed throughout the life of the loan or it can be variable, meaning it is subject to adjustment based on stated rates or factors.

Taxes
Even when buying real estate, you can't avoid paying taxes to Uncle Sam. Taxes on property, though, go to governments at the local level like the city or county to help schools and infrastructure operate. The tax revenues from homeowners help emergency facilities, rec centers, schools and other such facilities serve local residents. The tax assessments are typically added in with your monthly mortgage payment and are prorated each month. The lender pays the tax to the appropriate local government.

Insurance
It would be foolish to have a home without having being insured, and if you buy the home with borrowed money the lender will insist that you are properly insured. A home is your largest investment and a homeowners insurance policy is vital for your family's protection against disaster. There are many kinds of homeowner insurance policies from which you can select, which is more than we can cover in this article. Your insurance options also depend on how much of a down payment you make on the property. If you make a down payment of less than 20% percent, lenders will require you to carry a certain policy that assures they will get their money if you the home is lost to foreclosure. Any required insurance payments are normally rolled into your monthly payment.

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Real Estate Purchase Contracts: Moving in After Closing

Finished at last! The paperwork has all been completed, and you're anxious to move in. It seems like it has taken forever, and finally here you are. But wait. What's that? A delay? Just a little one, what harm can it do?

Sometimes the seller will ask to stay in the property for a time after the closing. As the buyer, you can approve or disapprove the seller's request, but before you make that decision, here are some things to consider.

It can happen, in the last days of frantic activity just before closing, that the seller asks for more time. It could seem reasonable, that they want to clean out the home a little better, or clean up other loose ends related to their own move or the transfer of the property in a clean condition. While the request may seem to be perfectly in order, you must consider it with caution. If you choose to allow the seller to stay in the house after closing, the seller must, at the very least, be required to pay a fee for the additional days, and that part of the contract must be documented.

There must be a definite limit on the time the seller can stay in the property after the signing of the contract, and it must be in written form. A clear agreement or contract addendum containing the details of the post-closing possession for benefit of the seller can be provided by the real estate attorney or, in jurisdictions where attorneys are not necessarily part of real estate contracts, by the escrow officer.

If the seller announces at the time of closing that he or she has to stay in the property longer, it is normally a good idea to delay closing on the home until such time as the seller can clear out or acceptable paperwork has been drafted and signed.

As a buyer, once you complete the purchase of a property, that property belongs to you and is your responsibility. This is true even if it is occupied by another party. If the seller causes a fire on the property, it is your loss. The seller will not have to pay for the loss unless it is included in the post-closing possession agreement, and even then the seller's liability as a renter may be restricted under law.

Additionally, sellers who retain possession of the real estate after closing have less motivation to take care of the property and make needed repairs. When closing on any property, you are accepting the property in the condition in which it stands at the time of closing.

Liability Issues
Whatever occurs to the property after closing is the responsibility of the buyer, regardless of who is actually occupying the property. If a furniture mover scars a wall or the kitchen tile or a window pane gets knocked out, you will have to pay for the repair.

A common problem with letting the seller keep possession of the home beyond the closing date is that items that should remain with the home can vanish between the closing and the time the buyer eventually takes possession of the property. Even when such a thing as this happens, the buyer is responsible for the missing items because they own the property.

As a buyer, you have a responsibility commensurate with your investment in the home. It is in your best interest to insist on possession at the time of closing, or to reschedule the closing until the previous owner has gotten out from the property and can turn over the keys.

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