Purchasing a home is a major decision and there are times at which all of the necessary paperwork and information can feel daunting. If choosing a home to live in wasn’t a big enough task, if you aren’t familiar with the mortgage or housing industry, there are many terms with which you may not be familiar. Your hand may get a cramp from the amount of paperwork you have to sign during the home buying process but that does not mean you should ever sign something you do not understand. Leave behind the intimidation and take some time to learn the common mortgage acronyms so that you can feel informed and confident in your home buying decision. Below are 7 common acronyms that may pop up at some point when acquiring a mortgage loan with which you should familiarize yourself.Verify your mortgage eligibility (Nov 30th, 2020)
You may hear your mortgage lender or realtor refer to your “LE” which simply stands for “Loan Estimate.” Your loan estimate will be mailed to you within three days of applying for a mortgage loan. The loan estimate will contain all mortgage details including interest rates, estimated loan costs, etc.
2. CDVerify your mortgage eligibility (Nov 30th, 2020)
CD Stands for “Closing Disclosure.” Your CD is similar to your LE – it is an itemized description of your loan costs and mortgage information that lenders are required to provide 3 days before closing. It contains the most current information and any changes that have occurred.
DTI stands for “Debt-to-Income.” DTI is a ratio that compares how much debt you have to how much income you bring in yearly. When you are purchasing a home, your lender will compare your overall debt (student loans, car loans, credit card debt, etc.) to your income to determine if you can afford to purchase a home.Verify your mortgage eligibility (Nov 30th, 2020)
LTV stands for “Loan-to-Value.” LTV is a ratio that helps lenders know how much of a risk a certain loan will be. The purchase price of the home is compared to the appraisal value of the home and the LTV must be within a certain range for a lender to move forward with a loan.
5. PMIVerify your mortgage eligibility (Nov 30th, 2020)
PMI stands for “Private Mortgage Insurance.” The only time you will have to pay PMI is if you put less than 20% down on the purchase of your home. PMI allows a buyer with a lower down payment to acquire a loan while protecting the lender in case of loan default. Your PMI payment will be a monthly payment that depends on the size of your down payment but may range between 0.3% to about 1.5%.
PITI stands for “Principle, Interest, Taxes, Insurance.” These are the four major components of what your mortgage payment will be. When you buy a home, your mortgage payment will not just include the price of the house (principle), but interest, taxes, and insurance as well so it is important to plan accordingly for what you can afford.Verify your mortgage eligibility (Nov 30th, 2020)
An “ARM” loan is an “Adjustable Rate Mortgage.” This means that it is different than a 15 or 30 year fixed-rate mortgage. With a fixed-rate mortgage, the interest rate you pay will never change for the life of the loan. With an ARM loan, your rate may stay locked for 5 years or some other pre-determined length of time, and after that, it will adjust based on the agreed-upon index. Often, an ARM loan has a lower fixed interest rate at first and once the rate adjusts it increases.Show me today's rates (Nov 30th, 2020)