Speaking a foreign language takes some time and patience to learn. What a lot of people don’t realize is that when you use a lot of acronym’s that are common in your industry, a lot of people outside the industry don’t have an idea what those things mean. It is essential only to use them when you are working with other professionals. When someone is getting into a home, they are probably going to run into a lot of acronym’s they aren’t familiar with, but either need to know or want to know. Let’s learn some of the standard terms used in the housing industry.
APR – Annual Percentage Rate - The APR is the percentage of interest a customer will pay on loan, usually a mortgage and other fees associated with the mortgage, like insurance and taxes.
ARV – After Repaired Value - There is an upward trend of flipping homes, so this refers to the assessed value of the house after the repairs or remodel have been done.
AMORT – Amortization – Amortization is when a borrower pays off the home debt using a fixed repayment schedule over time, often known as a mortgage.
ARM – Adjustable Rate Mortgage – The ARM is a mortgage loan with interest rates that vary over the life of a loan. The interest will periodically be adjusted based on the market interest rates.
CD – Closing Disclosure – When you get to the part of closing your home, these are all the papers that break down all the actual costs and what the charges are for the loan. By law, this must be presented three days before closing to give the buyer a chance to back out.
DTI – Debt to Income Ratio – This is a percentage that helps determine your eligibility to be approved for your mortgage loan. Your minimum monthly debt is divided by your gross monthly income to come up with the percentage of DTI.
ECOA – Equal Credit Opportunity Act – This is a law that was enacted in the 1970’s that made it illegal for any creditor to discriminate against any credit applicant based race, color, religion, national origin, sex, marital status, or age. The only stipulation is that the applicant must have the capacity to contract.
FHA – Federal Housing Administration – The FHA is a United States government agency created in 1934 as part of the National Housing Act. It is the largest insurer of mortgages in the world.
FSBO – For Sale By Owner – This is a home sale without the representation of an agent.
HELOC – Home Equity Line of Credit – This is a loan that can be taken by the homeowner based on the equity they have in the home. It is often considered a second mortgage and can be a way to save money or used for more substantial expenses like a remodel.
LTV – Loan to Value – LTV gives you the balance of the mortgage compared to the appraised value of the property.
PITI – Principal, Interest, Taxes, and Insurance – The PITI is the total included rates that make up your monthly mortgage payment. It consists of the principal, interest, taxes, and insurance.
PMI – Private Mortgage Insurance – This insurance is required if the owner’s LTV is less than 80%. The insurance protects the lender in case a loan goes into default.
VA - Veteran Affairs – A VA loan is a loan guaranteed to Veterans by the US Department of Veteran Affairs. It helps veterans and their family assistance in obtaining financing.
Making yourself familiar with these terms and others can help you get ahead of the game and be more prepared to get into a home. They can also give you more information, so you are ready to get into a house.