Mortgage terms to add to your vocabulary.
During the homebuying process, you’re likely to encounter a variety of terms and abbreviations that you may feel expected to know. While the internet loves its share of abbreviations (IYKYK), all this mortgage jargon can leave your head spinning. And when you’re buying a home, you don’t have time to be Googling every phrase that’s thrown at you. (LMGTFY instead.)
That’s why we created this cheat-sheet of common abbreviations you should know. Whether you’re a first-time or experienced buyer, keep this cheat-sheet handy JIC.
THE RATIOS
DTI
Debt-to-income ratio is a financial metric comparing your monthly debt payments to your monthly income, and lenders use it to assess a person’s ability to repay a loan. For example, a person with monthly debts averaging $1,700 and a gross monthly income of $6,000 has a debt-to-income ratio just over 28%.
LTV
Loan-to-value ratio is a metric that lenders use to compare your loan amount against the property value and assess the risk of offering you the loan. If a home is worth $300,000 and the loan amount is $250,000, the LTV ratio is 83%. A lower LTV is more favorable because it represents less risk to the lender.
WHAT'S IN A MORTGAGE PAYMENT?
MIP
A mortgage insurance premium is a type of insurance required of homeowners with FHA loans. MIP includes an upfront premium paid at closing and a monthly premium included in your mortgage payment. Mortgage insurance protects the lender in the event that the borrower falls behind on payments.
PMI
Private mortgage insurance is a type of insurance for conventional loans that gets added to your monthly payment. It is typically required when the down payment is less than 20%.
PITIA
Principal, interest, taxes, insurance, and assessments (like association dues) are the five components that make up the sum of a mortgage payment.
ALL ABOUT THAT RATE
ARM
An adjustable-rate mortgage is a home loan with a fixed interest rate for an introductory period of time that adjusts periodically thereafter based on prevailing market rates. The interest rate is typically lower during the introductory period.
FRM
A fixed-rate mortgage includes an interest rate that does not change over the life of the loan.
APR
The annual percentage rate is a calculation based on the total payments a buyer would make on a mortgage, including interest paid, closing costs, mortgage insurance, and other loan-related fees. Shown as a yearly percentage, it is a more complete measure of a loan’s cost than the interest rate alone.
GOVERNMENT-SPONSORED LOANS
FHA
A Federal Housing Administration loan is a home mortgage that is insured by the government and issued by a bank or other approved lender. You may be able to qualify for an FHA loan with a credit score as low as 500 or a down payment as little as 3.5% of the purchase price.
VA
Veterans Affairs loans are mortgages guaranteed by the U.S. Department of Veterans Affairs and are only available to eligible veterans, their spouses, and other beneficiaries. VA loans can offer generous terms, such as no down payment or mortgage insurance.
USDA
United States Department of Agriculture makes or guarantees loans to help low-income residents of rural areas who cannot obtain a conventional loan. Depending on qualifications, borrowers can potentially take out a mortgage at 100% of their home purchase price.
HFA
Housing Finance Agencies are state-sponsored entities that offer local residents assistance through a wide range of affordable housing and community development programs, such as down payment assistance.
Conventional loans, which aren’t government-backed, represent the majority of mortgage loans and may require a higher credit score and down payment than government-sponsored loans.
READ BEFORE YOU PROCEED
LE
A loan estimate is a document that provides the estimated costs for your loan. The lender must provide this information to the borrower within three business days of receiving a loan application.
CD
A closing disclosure form outlines the terms and costs of your mortgage and must be provided by the lender at least three business days before closing.
