Decoding Mortgage Jargon: 25 Must-Know Acronyms in the Home Financing World
Entering the realm of mortgages can often feel like deciphering a secret code. To help you navigate the intricacies of the home financing process, we’ve compiled a list of the 25 most common acronyms and mortgage jargon used in the mortgage industry. Whether you’re a first-time buyer or a seasoned homeowner, understanding these acronyms will empower you on your journey to secure the right mortgage for your needs.
- LTV (Loan-to-Value):
- This ratio compares the loan amount to the appraised value of the property. The lower the LTV, the less risk for the lender.
- DTI (Debt-to-Income):
- Debt-to-Income ratio measures your monthly debt payments relative to your gross monthly income. The lower your DTI, the less risk for the lender.
- FICO (Fair Isaac Corporation):
- FICO is a credit scoring model used by lenders to assess credit risk. The mortgage industry uses the lowest middle FICO score for all borrowers to determine interest rate pricing.
- PMI (Private Mortgage Insurance):
- PMI is required for loans with a low-down payment to protect the lender in case of default.
- FHA (Federal Housing Administration):
- FHA insures loans, making them more accessible to borrowers with lower down payments (3.5%).
- VA (Veterans Affairs):
- VA loans are guaranteed by the U.S. Department of Veterans Affairs, designed for eligible veterans.
- ARM (Adjustable-Rate Mortgage):
- An ARM has an interest rate that may change periodically.
- APR (Annual Percentage Rate):
- APR reflects the true cost of a mortgage, including interest rate and fees.
- HELOC (Home Equity Line of Credit):
- HELOC allows homeowners to borrow against the equity in their homes. HELOC’s are generally a second mortgage, behind your first mortgage.
- PITI (Principal, Interest, Taxes, Insurance):
- PITI represents the four components of a mortgage payment.
- CD (Closing Disclosure):
- CD provides a comprehensive breakdown of the final terms and costs of the mortgage loan, replacing the HUD-1 Settlement Statement.
- LE (Loan Estimate):
- LE is an estimate of the total costs of the mortgage loan provided to the borrower by the lender, helping them understand the potential costs and terms early in the process. This document replaces the Good Faith Estimate and Truth In Lending Disclosure, if your old enough to remember those documents.
- NMLS (Nationwide Mortgage Licensing System):
- NMLS is a system that registers mortgage loan originators. Any licensed loan originator can be found at https://www.nmlsconsumeraccess.org/
- POA (Power of Attorney):
- POA is a legal document that grants someone the authority to act on your behalf.
- HUD (Department of Housing and Urban Development):
- HUD oversees federal housing programs and enforces fair housing laws.
- USDA (United States Department of Agriculture):
- USDA loans are designed to help individuals in rural areas purchase homes.
- ROI (Return on Investment):
- ROI calculates the return on a real estate investment, or any other investment for that matter.
- CMA (Comparative Market Analysis):
- CMA evaluates the value of a property by comparing it to similar recently sold properties.
- REO (Real Estate Owned):
- REO refers to properties owned by a lender after foreclosure.
- GSE (Government-Sponsored Enterprise):
- GSEs are entities like Fannie Mae and Freddie Mac that facilitate the flow of capital to the housing market.
- HOA (Homeowners Association):
- HOA is an organization that manages common areas and enforces rules in a community.
- LOX (Letter of Explanation):
- LOX is a letter that provides additional information or clarifications about specific aspects of your mortgage application.