Ned and Carla buy a house listed at $105,000; their offer for $5,000 less than that is accepted. They obtain a loan with an 80% loan-to-value ratio. The loan is for 30 years with a 5.5% interest rate. Taxes for the year are $4,000; insurance for the year is $800. What is their monthly PITI payment?

• A. 333
• B. 454
• C. 67
• D. 854

Answer: (D)

PITI is all the monthly housing costs: the loan’s principal and interest plus monthly property taxes and homeowners insurance.

First, the purchase price is 105,000 minus 5,000 = 100,000. With an 80% loan-to-value, the loan amount is 80,000. The loan is 30 years at 5.5%, so the monthly interest rate i is 0.055/12 = 0.0045833, and the number of payments n is 360.

The monthly principal and interest is found with the standard amortization formula. Using these numbers, the P&I comes out to about 454.

Monthly taxes are 4,000 per year, which is 4,000 / 12 ≈ 333. Monthly insurance is 800 per year, which is 800 / 12 ≈ 67.

Add them together: 454 + 333 + 67 ≈ 854.

So the monthly PITI is about 854.