It’s not you— it’s us, and we apologize. When it comes to talking about home loans, we sometimes forget that not everyone speaks the language of mortgages.
What sounds like code to you, often is—frequently it’s legal code. From 203 (k) loans to TRID, the mortgage process is riddled with references to the legal statures that lead to certain provisions, requirements or types of loan structures. To cope, we just start talking in shorthand.
Deciphering Our Acronyms
Some of the most used terms within the industry are the hardest to understand. It’s not intentional. We just forget that we can lose you in the acronyms if you aren’t familiar with the language.
APR (Annual Percentage Rate)
This is the total yearly cost of your mortgage, which is stated as a percentage of your loan’s amount. APR is not the same as your interest rate. The interest rate just refers to one expense. APR includes the cost of mortgage insurance (if you are paying it) and the loan origination fee or any points you paid. When you compare mortgage programs—or lenders’ rates—APR provides you with an apples-to-apples comparison to determine what will be most cost effective for you.
DTI (Debt-to-Income Ratio)
DTI is a key determinant in mortgage lending. We calculate it for every application. It’s used to qualify you for a mortgage by comparing your total monthly housing expense plus what you pay on your other debt obligations to the total amount of money you have coming in each month. The lower the DTI, the easier it will be for you to afford the mortgage amount you seek and typically, the easier it is for us to approve the request.
PMI (Private Mortgage Insurance)
Just for the record, PMI—which is also referred to as MIP under some loan programs—is the fee you pay if you buy a home with a down payment that is less than 20 percent of the purchase price, under most loan programs. The insurance is not on you, or your home, but on your ability to pay. What that means is that when a person puts down less than 20 percent, the loan is considered riskier for the lender. More risk means the higher the interest rate you are likely to be charged. But, mortgage insurance guarantees that the lender, or whoever ultimately holds your loan, will be paid even if the loan defaults. It also enables us to offer better terms than if you were to borrow without it.
These are just a few of the many terms and abbreviations that may crop up in a conversation during the mortgage application and approval process. As they do, please stop your lender. Call us out on our “secret” language and have us explain what we are talking about in plain terms. It’s your money and your home. You deserve explanations of the terms and conditions related to financing it.
When it comes to home loans, you can find your answers here. Contact us at 877-966-0202 with your questions or if you need an immediate definition, visit our online Mortgage Glossary. We can’t wait to talk to you about what we can do for you today.