Breaking it down: Home loan acronyms you need to know!

So many acronyms, so little time. Buying a home or refinancing an existing is stressful enough without having to ask Siri how to translate the home buying process. Let us help you with a quick breakdown of the main home buying acronyms you need to know when getting a loan:

APR (Annual Percentage Rate):

This is the annual cost of borrowing money. The APR includes your mortgage amount, interest rate and any fees associated with your loan. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan.

ARM (Adjustable Rate Mortgage):

An ARM (Adjustable Rate Mortgage) will usually give you lower monthly payments at the start of your loan payment period. Over time your payments will change (adjust) with interest rates. An ARM interest rate will adjusts after an initial period — typically 3, 5 or 7 years — and resets periodically.

DTI (Debt to Income):

The percentage of your income that goes toward your total debt. This number is normally shown as a ratio and is calculated by your monthly debt payments divided by your gross monthly income. This is one way lenders can determine if you are able to repay the money you want to borrow.

FRM (Fixed-Rate Mortgage):

A fixed-rate mortgage has an interest rate that does not change during the entire term of your loan. This is the most common type of mortgage, giving you certainty and stability over the life of the loan.

HOA (Homeowners Association)

A Home Owners Association (HOA) is an organization of homeowners of a particular subdivision, condominium or planned unit development. The purpose of a home owners association is to provide a common basis for preserving maintaining and enhancing their homes and property. An HOA Fee is usually established that home owners have to pay on a monthly basis. These fee’s are considered in your overall cost of homeownership.

LTV (Loan-to-Value):

The loan-to-value ratio divides the amount of money borrowed by the appraised value of the home and tells you how much of your home you own versus how much you owe on your mortgage. Lenders use it to help evaluate the risk and terms of your loan.

P&I (Principal & Interest):

Principal & Interest are the portions of your monthly payment that go towards paying off your loan.

PITI (Principal, Interest, Taxes and Insurance):

All together, principal, interest, taxes and insurance make up your total monthly mortgage payment. Calculating your total monthly payment, not just principal and interest, is an essential part of the loan approval process because it will give you a more accurate picture of the cost of home ownership.

PMI (Private Mortgage Insurance):

PMI is insurance that a lender may require to protect them against loss if you are unable to pay your mortgage back. PMI is usually required when a borrower’s down payment of less than 20 percent of the home’s purchase price.

Have more questions you want answered? Reach out and contact one of our Mortgage Advisors today. We are happy to help!


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