While there's no shortage of “must-know” info available when it comes to home loans, it's still safe to say you'll never honestly know everything there is to know about mortgages – as rules, regulations and product offerings tend to be updated on a relatively frequent basis. That's where a trusted partner like Guardian Mortgage comes into play, as we always do our best to consistently communicate the latest need-to-know info regarding mortgages.
All home loan knowledge has to start somewhere, so we've compiled what we believe are the top 10 acronyms every real estate agent should know about mortgages. While obviously there are many more than just 10, this list will give you a solid foundation moving forward.
PITI is an acronym for Principal, Interest, Taxes and Insurance – the components of a monthly mortgage loan payment.
LTV stands for Loan to Value and is the relationship between the amount of your outstanding mortgage loan balance to the appraised value or sales price, whichever is less. The LTV is expressed as a percentage. For example, the LTV for the following scenario would be 60% ($165,000 divided by $275,000):
Appraised Value = $275,000 Sales Price = $280,000 Mortgage Loan Balance = $165,000
The DTI is the debt-to-income ratio, used by lenders to determine an applicant's ability to repay the mortgage based on current gross income and liabilities. DTI comprises the total monthly debt, including all house payments, credit cards and other loans, divided by the total gross monthly income.
PMI stands for private mortgage insurance. PMI is required by a lender when a borrower seeks to finance more than 80% of the home value. This partially protects the lender from a loss if the borrower fails to make the mortgage payments. PMI is included in the escrow portion of the monthly payment.
ARM is an adjustable-rate mortgage, and it differs from a standard fixed-rate mortgage because its interest rate can change several times during the loan term. While the initial interest rate on an ARM is usually lower than that of a fixed-rate loan, and it stays the same for a set period of time, it does adjust lower or higher depending on market conditions.
CD refers to the Closing Disclosure. The CD is a form that provides the final details about a mortgage loan. It includes the loan terms, the projected monthly payments, and how much someone will pay in fees and other costs to get the mortgage.
FHA is the Federal Housing Administration. It's a government agency that was created by the National Housing Act of 1934. The FHA insures mortgages made by private lenders for several property types. FHA mortgage insurance protects lenders against losses. As a result of that protection, lenders take on less risk, allowing them to offer more mortgages – making homeownership an option for even more Americans.
HUD is an acronym for the US Department of Housing and Urban Development. HUD is a Cabinet department in the executive branch of the US federal government. It houses (no pun intended) the Federal Housing Administration.
HELOC is short for Home Equity Line of Credit. This loan type is a line of credit secured by the equity in your home that gives you a revolving credit line to use for large expenses, or to pay off other debts.
FICO is the acronym for Fair, Isaac and Company. FICO is a data analytics firm focused on credit scoring services. A FICO score is a measure of consumer credit risk, and is one of the main factors considered by lenders to determine whether or not to approve a mortgage application.
As we mentioned, this could be a much longer list. And we may publish another in the future. But for now, this list of top 10 mortgage acronyms is the perfect starting point for those just starting in real estate, or a solid refresher for industry vets. Either way, if you ever have any questions about mortgage terms or acronyms, a Guardian Mortgage Professional is always ready to assist you.