Understanding Mortgage Lending Acronyms
Posted on: 21 August 2020
If you are securing your first mortgage, you may feel somewhat confused and lost. There is a lot of lingo used by mortgage lenders and real estate professionals that can be confusing. As a result, you might be turning to your dictionary in the hope of learning more. These are some words commonly used in loan programs and by mortgage lenders. Knowing them will ease some of your concerns.
Annual Percentage Rate
The annual percentage rate, or APR, is the annual interest rate you will pay on your loan. This is essentially the money you pay for borrowing money in the first place. It is added to your loan payment.
Fair Isaac Corporation
FICO is the company most commonly used to determine one's risk to creditors. The figure provided by FICO essentially tells a lender if you are worthy of obtaining credit.
Closing Disclosure
The closing disclosure, or CD, is one of the last documents you see before your home closes. Your mortgage and the final terms of your loan will be discussed in this document. You should always look over this document carefully for accuracy.
Personal Mortgage Insurance
In order to secure a mortgage, you may need to have personal mortgage insurance, or PMI. This is most often a requirement for buyers who do not put down a significant chunk of money. If you are unable to make your mortgage payment, this insurance helps the lender.
Federal Housing Administration
The Federal Housing Administration, or FHA, is the organization that sets many standards for mortgages and lending for housing. It also oversees things like construction. The FHA is responsible for insuring your loan.
Adjustable Rate Mortgage
The adjustable rate mortgage, or ARM, is the interest rate that can change. It can decrease or increase based on several factors. Most new homeowners will have a low interest rate to start, but the rate can increase over time.
Debt-to-Income Ratio
The debt-to-income ratio, or DTI ratio, is the figure a lender uses to examine your monthly income compared to your monthly debts. The lender wants to see that you have enough income to cover the cost of your loan every month.
Got Questions? Ask a Mortgage Lender
It is important to ask a mortgage lender if you still have questions. They will be happy to clear up your confusion and answer some of your questions about the vocabulary used by those with mortgage experience.
Share