When it comes to the world of homebuying in Washington, Oregon, Idaho, California or Colorado there’s a certain lingo that’s unique to this realm. You’ll often run into these terms while shopping for homes, talking with a lender about pre-approval, reviewing loan options, and looking over mortgage costs. This can make it a bit difficult for buyers who are new to the homebuying game to follow and understand.
As such, it’s worthwhile for buyers to take a little bit of time to get to know some of the acronyms that are frequently used in the industry. This article explains what five common acronyms mean and why they matter during the mortgage process.
For instance, do you know what these acronyms mean?
This represents the annual cost of borrowing money based on the loan amount, interest rate, and any other applicable fees.
This type of home loan comes with an interest rate that remains fixed throughout the term and never changes. If rates are really low when you buy a home, it may be best to lock in at a low rate with a fixed-rate mortgage.
Your DTI represents how much of your monthly income is dedicated to paying your monthly debt bills.
This type of insurance is required if you make less than a 20% down payment towards the purchase of your home. PMI protects lenders from losses if you are unable to pay your mortgage.
These represent the portion of your monthly mortgage payment that will go towards paying off the loan amount you borrowed to buy a home.
While these phrases might sound foreign to you when you first hear them, knowing what they are and what they mean can help you better understand the homebuying process.
These terms usually come up in practical parts of the buying process, not just in definitions. You may hear them during pre-approval conversations with a lender, see them on a Loan Estimate when comparing mortgage options, and notice them when reviewing your monthly payment breakdown. They also show up when you’re discussing affordability, comparing loan structures, and deciding which mortgage program best fits your budget.
Sammamish Mortgage can help. We serve clients across Washington, Idaho, Colorado, Oregon, and California. Since 1992, we’ve been providing several mortgage programs and products with flexible qualification criteria to borrowers across the Pacific Northwest. Visit our website to get an instant rate quote or to use our online mortgage calculator. Or, reach out to us if you are ready to get pre-approved for a mortgage.
Common homebuying acronyms include APR, FRM, DTI, PMI, and P&I. These terms often come up when shopping for homes, talking with a lender about pre-approval, reviewing loan options, and comparing mortgage costs.
APR stands for annual percentage rate. It represents the annual cost of borrowing money based on the loan amount, the interest rate, and any other applicable fees.
The interest rate is the rate charged on the money borrowed, while APR reflects the broader annual cost of the loan by factoring in the interest rate plus applicable fees. That makes APR useful when comparing mortgage options.
FRM stands for fixed-rate mortgage. This type of home loan has an interest rate that stays the same for the full loan term and does not change over time.
DTI stands for debt-to-income ratio. It shows how much of a borrower’s monthly income goes toward paying monthly debt bills.
DTI often comes up during pre-approval conversations with a lender and when discussing affordability. It can also matter when comparing loan structures and deciding which mortgage program best fits a borrower’s budget.
PMI stands for private mortgage insurance. It is typically required when a borrower makes less than a 20% down payment on a home, and it protects lenders from losses if the borrower cannot pay the mortgage.
PMI is generally tied to making less than a 20% down payment, but the timing and rules for removing it can vary by loan and lender. A lender can explain how PMI works for a specific mortgage option.
P&I stands for principal and interest. It refers to the part of the monthly mortgage payment that goes toward repaying the amount borrowed and the interest charged on that loan.
P&I includes principal and interest only. It does not refer to other possible housing costs such as mortgage insurance or other charges that may appear in a full monthly payment breakdown.
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