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1.4.2023 / Home Buying Tips

Understanding Mortgage Acronymns

For most of us, buying a home is exciting and sometimes stressful. The new terms and acronyms that pop up during the process of purchasing a home can often add to the confusion and worry. Below are 10 commonly used acronyms and explanations for what they stand for.

  • DTI (Debt-to-Income): Debt-to-income helps lenders evaluate your ability to repay debts while managing monthly payments. DTI is the percentage of your monthly income that goes toward your monthly debt payments.

  • APR (Annual Percentage Rate): The annual percentage rate is the total annual cost of borrowing money based on the loan amount interest rate, and certain other fees.

  • FRM (Fixed-Rate Mortgage): A fixed-rate mortgage is the most common type of mortgage. It has an interest rate that does not change during the entire term of your loan.

  • ARM (Adjustable-Rate Mortgage): An adjustable-rate mortgage usually gives you lower monthly payments at the beginning, but your payments will change over time with changing interest rates. With this type of mortgage, your interest rate adjusts after an initial period — typically 3, 5, or 7 years — and continues to reset periodically.

  • P&I (Principal and Interest): Principal and interest indicate how much of your monthly mortgage payment goes toward paying off the money you borrowed to buy your home.

  • PITI (Principal, Interest, Taxes, and Insurance): Together, principal, interest, taxes, and insurance make up your total monthly mortgage payment. When evaluating your home purchase, remember to include taxes and insurance along with the principal and interest. This will give you a more accurate picture of the cost of homeownership.

  • LTV (Loan-to-Value): The loan-to-value ratio tells you how much of your home you own compared to how much you owe on your mortgage. To determine the LTV, divide the amount of money borrowed by the appraised value of the home. Lenders use this important info to help evaluate the risk and terms of your loan.

  • PMI (Private Mortgage Insurance): Private mortgage insurance is an insurance that protects lenders from losses in the event that a homeowner is unable to pay their mortgage. Homebuyers who make down payments that are less than 20% of the home purchase price are required to get PMI. Typically, PMI will be incorporated into your monthly mortgage payment.

  • UPB (Unpaid Principal Balance): The unpaid principal balance is the amount of principal still owed on a loan. On a typical monthly mortgage payment, a portion of your payment is applied to the interest, and a portion is applied to the principal. Then, the following month's interest is based on your UPB.

  • HOA (Homeowners Association): If you are considering purchasing a home in a neighborhood that has an HOA, be sure to investigate the fees or dues that they charge. It’s very important to pay your fees as scheduled – typically monthly, quarterly, or annually. HOA fees vary widely from community to community in terms of services included and the costs associated with them.

If you have any questions or need more information about acronyms or anything else you encounter during your home-buying process, take a look at our Homebuyer’s Guide. Then contact one of our local, caring mortgage professionals at a mortgage center near you. We’d be happy to talk to you.

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