Buying and financing a home, especially your first home, can be confusing when you’re new to the mortgage process and all of the lingo that comes with it. Knowing what these acronyms mean and how they affect your mortgage can make the experience less intimidating. Here are some common mortgage acronyms you might hear throughout your home financing journey.
Image courtesy of ddpavumba at FreeDigitalPhotos.net
APR – Annual Percentage Rate
You annual percentage rate is different from your mortgage interest rate. There are many costs associated with taking out a mortgage, including interest rate, points and fees. While your interest rate is the cost you will pay to borrow money, your APR refers to the annual cost of a loan to a borrower.
DTI – Debt-to-Income
The relationship between an individual’s debt payments to the income he or she earns.
LTV – Loan-to-Value
LTV is the relationship between the principal balance of the mortgage and the appraised value (or sales price, if lower) of the property.
PMI – Private Mortgage Insurance
Private mortgage insurance is typically required for borrowers whose LTV ratio is less than 80 percent. PMI protects lenders in the case that borrowers default on their mortgage, but it is also beneficial for homebuyers, as it allows borrowers to purchase a home with a down payment of less than 20 percent.
TRID – TILA RESPA Integrated Disclosures
For more than 30 years, federal law has required mortgage lenders to provide certain disclosure forms to their borrowers after applying for a mortgage and prior to closing. The new disclosure law, TRID, was enacted in 2015 and affects what information has to be provided and how soon after an application is taken and prior to closing.
LE – Loan Estimate
A loan estimate is a form designed to provide disclosures that will be helpful to borrowers in understanding certain features, costs and risks of the mortgage for which they have applied. Your mortgage lender is required to deliver the LE within three business days (Monday-Friday, excluding federal holidays) after application.
CD – Closing Disclosure
A CD is required to be delivered to a borrower at least three business days (Monday-Saturday, excluding federal holidays) prior to closing and must contain all final costs for a borrower’s mortgage. This form is designed to provide disclosures that will be helpful to borrowers in understanding the costs of their mortgage transaction.
FHA – Federal Housing Administration
The FHA is the largest insurer of residential mortgages in the world. An FHA loan is often referred to as a “first-time homebuyer loan” because of the low down payment requirement. FHA loans have been helping first-time and repeat buyers become homeowners since 1934. The FHA also has renovation loan types available.
ARM – Adjustable Rate Mortgage
Adjustable rate mortgages have interest rates that are fixed for a specified term (3, 5, 7 or 10 years) and then adjust annually based on changes in a pre-selected index. ARM’s have lower initial interest rates during the fixed initial term than fixed rate loans.
FRM – Fixed Rate Mortgage
A fixed rate mortgage is exactly how it sounds. Your mortgage rate is fixed for the entirety of your loan duration, unless of course you choose to refinance.
LOX – Letter of Explanation
Your lender will ask you for various things throughout the application and underwriting process, one of them possibly being a letter of explanation. For instance, let’s say you had a recent late payment on one of your credit accounts. Your lender will ask you to provide a short statement as to why that occurred. An LOX can be requested for anything ranging from rental history to income changes.
PITI – Principal, Interest, Taxes and Insurance
“PITI” typically refers to the entirety of your monthly mortgage payment, including principal, interest, taxes and insurance. PITI can also include homeowners association fees, if applicable.
If you’re looking for more mortgage and homebuying knowledge, download our free Mortgage 101 Handbook for everything you need to know about buying your first home.