When you set out to buy your first home, you should be prepared to review and sign lots of documents throughout the process. You'll come across several acronyms in each — PMI? LTV? — that it can feel like reading a different language. Here, we break down the mortgage ABCs to simplify your home-buying process.
APR — annual percentage rate
Your annual percentage rate is the percent of the loan you will pay every year in interest. This amount will then get added to the amount you borrowed to calculate the total amount you owe.
CD — Closing Disclosure
The closing disclosure is what you'll receive a few days before you officially close on your house. It is provided by the lender, and it compares your final costs and terms with your initial loan estimate.
CLTV — combined loan-to-value (ratio)
Your CLTV is the ratio of all secured loans (including the first loan, HELOC, and any additional financing such as a second mortgage) on a property in relation to its value. The ratio is expressed as a percentage, and lenders use it to evaluate risk.
DPA — down payment assistance
Down payment assistance programs help prospective home buyers who are ready to purchase but don't have the funds for a full down payment. This assistance can come in the form of grants, low-interest loans, or zero-interest loans, some of which are forgivable.
DTI — debt-to-income (ratio)
Your debt-to-income ratio is the amount of your all of your debts (including a mortgage) in relation to your income. This is one key figure lenders use when determining loan qualification.
FHA — Federal Housing Authority
Loans from the Federal Housing Authority are backed by the government with a fixed rate. FHA borrowers can put as little as 3.5% of the purchase price as the down payment, though mortgage insurance is often required.
HELOC — home equity line of credit
A HELOC is a line of credit separate from your mortgage that is based on the equity of your home.
HOA — homeowners association
A homeowners association is the organization that creates and enforces rules for homes and residents. You'll often find it in condos, co-ops and some residential neighborhoods. It comes with a fee, so make sure to factor that into your budget if you're looking at those types of properties.
HOI — homeowner's insurance
Homeowner's insurance is a type of insurance that covers your property against damage or loss. Many lenders will require you to have a policy before closing. Note that it is different from a home warranty and mortgage insurance.
HCV — Housing Choice Voucher
Housing choice vouchers allow very low-income families to choose and lease or purchase safe, decent, and affordable privately-owned rental housing.
LE — Loan Estimate
A Loan Estimate is a document that explains in detail the terms, payments and costs associated with your loan.
LTV — loan-to-value (ratio)
Not to be confused with CLTV, your loan-to-value ratio is the value of the your mortgage loan in relation to the appraised value of the home. Lenders use it to determine two things: whether to approve your application, and whether you'll need to pay PMI.
MCC — Mortgage Credit Certificate
MCCs are not a loan product, but rather a federal tax credit. MCCs are certificates issued by HFAs that increase the federal tax benefits of owning a home and helps low- and moderate-income, first-time homebuyers offset a portion of the amount they owe in mortgage interest.
P&I — principal and interest
Principal and interest are the two core parts of your monthly mortgage payment. "Principal" refers to the actual loan balance, while "interest" refers to (you guessed it) the interest on the loan.
PITI — principal, interest, taxes and insurance
PITI is similar to P&I, only it adds taxes and insurance. Altogether, these four pieces represent your entire monthly mortgage payment.
PMI — private mortgage insurance
Private mortgage insurance is a type of loan insurance that some lenders require buyers to have, intended to protect the lender if the buyer defaults on the loan. It is most commonly required on conventional loans where the buyer puts less than 20% down.
TIP — total interest percentage
You will find TIP on both your Loan Estimate and Closing Disclosure. It is a percentage that compares the total amount of interest you will pay on the loan with the actual amount you borrowed. Not to be confused with your interest rate or annual percentage rate.
UFMIP — up front mortgage insurance premium
UFMIP is similar to PMI, only it applies to FHA loans instead of conventional.
USDA — United States Department of Agriculture
The housing service of the USDA offers fixed-rate mortgage loans to borrowers in rural areas. These loans typically offer favorable interest rates and a zero down payment options to buyers with low to moderate incomes.
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This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information. Diversification does not ensure against loss.
Mortgage Basics ebook
This guide can help answer your questions and even tell you how to get prequalified for a mortgage.
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