Important Homebuying Lingo You Should Know
Navigating the homebuying world can be tricky, even if it isn’t your first time dealing with a mortgage. There may be lots of acronyms and jargon that get thrown around during the process, but what do any of them mean? To avoid confusion and help you buy a home like a seasoned pro, here is a handy guide explaining some important homebuying lingo that you should know.
Homebuying Acronyms to Know
- APR: Annual Percentage Rate. This is the interest rate you pay on a loan annually.
- ARM: Adjustable Rate Mortgage. An ARM is a type of mortgage with an interest rate that can either be increased or decreased, depending on certain factors. An ARM often starts with low interest rates, then is adjusted based on the standard financial index set from either the Federal Reserve or the London Interbank Offered Rate.
- CD: Closing Disclosure. This is a form provided to you by your lender at least three days before closing. It outlines the final terms and cost of your mortgage. This form is extremely important and must be thoroughly examined to make sure you’re aware of every condition before closing.
- DTI Ratio: Debt-to-Income Ratio. Lenders look at this to see the percentage of your monthly gross income paid toward your monthly debt payments.
- FICO and BEACON SCORES: FICO scores were first developed by the Fair Isaac Corporation for Experian, one of the three main credit bureaus, while Beacon was developed specifically for Equifax. The third credit bureau, TransUnion, also has their own scoring model. These scores are used to determine a homebuyer’s credit risk. Typically, a mortgage company looks at all three scores and uses the middle one.
- FHA: Federal Housing Administration. The FHA is a government agency that offers assistance by insuring loans so lenders can get better deals. They also set standards for construction and underwriting.
- LE: Loan Estimate. This is a document provided to you at the beginning of the loan process. It shows a breakdown of your estimated costs including interest rate, loan amount, and closing fees.
- LOX: Letter of Explanation. While not always necessary, a LOX can be used by you to explain anything in your financial or employment documents that may be concerning. This often includes unusual activity in credit reports or bank statements.
- LTV Ratio: Loan-to-Value Ratio. The LTV ratio compares the loan amount to the market value of the asset. Lenders look at this to determine the risk factor for taking on a loan.
- PITI: Principal, Interest, Taxes, and Insurance. All four of these factors come together to equal your monthly mortgage payment.
- PMI / MIP: Private Mortgage Insurance (or Mortgage Insurance Premium for FHA loans). This is a type of insurance used to protect the lender if mortgage payments aren’t made. PMI is typically required if your down payment is less than 20% of the purchase price, while MIP is required for all FHA loans.
- POC: Paid Outside of Closing. POC’s are any payments that are typically paid before closing, such as the appraisal fee.
Get to Know the Experts at Butler Mortgage
With over 25 years of experience, Butler Mortgage has worked alongside many Central Floridians — from first-time purchasers to seasoned homebuyers — to achieve the dream of owning a home. And we’d be happy to assist you in securing financing for your dream home. To find out more about our services, call us today at 407-931-3800 or fill out our free consultation form online.