Homebuyers beware. The world of mortgage lending is a scary place, filled with acronyms and lingo you may not know.
But, have no fear – Movement Mortgage is here. We’ve compiled a list of the most common mortgage terms to help guide you through the journey… now, go forth and conquer!
- Debt-to-Income (DTI) — The difference between your combined debt and overall income. Lenders use the DTI ratio to determine if you’re able to afford your monthly mortgage payment and repay your other debts. Think your DTI may hold you back? Learn more here.
- Loan-to-Value (LTV) — The comparison between your mortgage loan and the value of your home; the difference between the two numbers is your equity. The LTV is another factor considered in the lending process. It’s measured in percentage and will decrease as you pay your mortgage down. Unpack the LTV ratio more here.
- Private Mortgage Insurance (PMI) — A type of insurance that may be required if you pay less than 20% down payment. It’s basically a safety net for the mortgage lender, in case you default on your loan. The insurance is calculated annually, divided into 12 payments, and included in your mortgage each month. Prefer TMI on PMI? Read more here.
- Annual Percentage Rate (APR) — The total cost for you to borrow money. It includes the interest rate, plus any other fees you pay to close the loan. Get the skinny on APR here.
- Refinance (Refi) — Essentially, it’s a new mortgage to replace the original. A refi gives borrowers an opportunity to get a better interest rate, which can result in a lower monthly mortgage payment, among other benefits. Understand all the refi options here.
- FICO — It’s an abbreviation for the Fair Isaac Corporation, the first company to offer a credit-risk model with a score. Created from information provided by the three major credit reporting agencies, your FICO reflects how well you manage your debt. When it comes to mortgage loans, a low FICO could mean a no-go. Learn all you need to know about FICO here.
Fixed-rate mortgage (FRM) vs Adjustable-rate mortgage (ARM) — Both are options for your home loan interest rate.
An FRM interest rate remains the same for the life of the loan, meaning your monthly principal and interest payments won’t change annually.
An ARM interest rate can change periodically, which means your monthly payments could go up or down.