Like every industry, the mortgage industry also has a set of specific acronyms. If you’re a first time home-buyer, these words may seem like a foreign language. Here is a list of the most common mortgage words you should be familiar with before going to a lender:
- Annual Percentage Rate-APR:
It is the annual cost of borrowing money as per the loan amount, interest rate, and other fees. APR also allows you to compare the true costs from several other lenders to find the best deal.
- Adjustable-Rate Mortgage-ARM:
In ARM, the interest rate is locked for a certain time period and the interest rate and monthly payments can change periodically. The ARM rate is set by summing the financial index value and margin value. ARMs start with a low-interest rate then after the pre-determined length of time, they will be adjusted based on the agreed-upon index.
It is the ratio of debt payments divided by gross income. The lower the DTI, the higher the chances of getting a loan.
- Fixed-Rate Mortgage-FRM:
FRM has a fixed interest rate throughout. People who prefer stable monthly payments opt for this.
- Loan Estimate-LE:
It’s a federally required document that has your loan details and closing cost estimates, provided by the lender within 3 days of submitting the loan application.
- Loan Term-LT:
It is the duration of loan payments. The common ones are 15 or 30 year mortgages.
- Letter of Explanation-LOX:
These are short letters, explaining any unforeseen circumstances, such as changes in income, required by the lender.
LTV is the loan amount divided by the home purchaser’s price. If you put down 20% when buying a home, your LTV would be 80%. The lowest value this can take is 3%. FHA loans require 3.5% and VA and USDA Loans allow buyers to put zero down.
- Principal and Interest-P&I:
It is a portion of your monthly mortgage payment that goes in paying off the money you borrowed to buy your home.
- Principal, Interest, Taxes, and Insurance -PITI:
It is the monthly mortgage payment that will cover the Principal, Interest, Taxes, and Insurance. PITI also lets you know where your payments go.
- Private Mortgage Insurance-PMI:
If you are unable to pay your mortgage, then PMI insurance will protect you from losses. Lenders collect this fee as part of your monthly payments if you make a down payment on a conventional loan that’s lower than 20%. Your lender can help you determine any applicable fees and costs associated with your mortgage. You’ll have to pay PMI until you can build enough home equity to request the lender to stop paying it.
Contact us at (605) 718-9820 or schedule a call and let our mortgage experts help you with your home loan.