Cracking the “mortgage speak” code can be challenging, but it’s important to understand what certain terms mean when you’re moving through the home loan process. To help guide you, here is a helpful list of commonly used mortgage terms, acronyms, and definitions to brush up on.
Adjustable rate mortgage (ARM) – A mortgage with an interest rate that adjusts at scheduled dates based on a pre-selected index.
Debt-to-income (DTI) ratio – Often used in qualifying a consumer for a home loan, DTI reflects the consumer’s monthly debt and debt-related costs, such as taxes, fees, and insurance premiums as a percentage of their monthly gross income.
Loan Estimate – A document delivered or mailed to customers by a lender within three business days of mortgage application. The Loan Estimate provides an estimate of closing costs and fees as well as the loan terms.
Loan-to-value (LTV) ratio – The current loan amount compared to the value of the property, expressed as a percentage. For example, a loan amount of $150,000 for a home valued at $200,000 would have an LTV ratio of 75%.
Mortgage Insurance Premium (MIP) – The consideration a mortgagor (borrower) pays to either the Federal Housing Administration or a private insurer for mortgage insurance.
Private Mortgage Insurance (PMI) – Insurance written by a private company protecting the mortgage lender against loss resulting from a mortgage default.
Real Estate Settlement Procedures Act (RESPA) – A federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances.
Truth-in-Lending Act (TILA) – A Federal law requiring full disclosure of credit terms using a standard format. This is intended to facilitate comparisons between lending terms and financial institutions.