Buying a home can be a stressful, confusing process ~ knowledge is power, and when it comes time to start interviewing mortgage lenders it will help to have the basics of the “business terminology” under your belt!
Here’s a few terms that you should be familiar with;
APR
APR means annual percentage rate. Each time a mortgage lender quotes a mortgage rate, the loan’s APR has to be disclosed as well. The stated rate is used for monthly payment calculations; however it doesn’t prove anything concerning the cost of financing. APR will assist a lot in comparing the mortgages that have different rates and costs.
LTV
LTV stands for loan-to-value, which is a percentage of the homes selling price or appraised value (whichever is lower) that’s being financed. Loans that have a lower LTV are safer for lenders and they normally come with reduced mortgage rates.
ARM
This is the short form for adjustable rate mortgage. Unlike FRMs (Fixed-rate mortgages), ARMs have varying interest rates over time. ARM loans have rates that vary with economic conditions… most home buyers feel more secure with a fixed rate mortgage.
TIL
TTL stands for truth-in-lending. TIL will disclose your APR, which shows the cost of your mortgage in terms of investment rates and this allows easier comparison amongst other programs with varying rates and fees. The other thing is that it can give you the credit cost of the loan over the loan period and it can tell you when your payments are due and the amount to pay.
GFE
GFE stands for your good faith estimate. It shows the costs of your mortgage. Each time you apply for a home loan, the lenders need to provide a GFE for you within three business days. According to law, the real cost upon the closure of your home loan must be equivalent to what was disclosed within specific margins. Some of the information that the GFE has include;
- Summary of your settlement charges
- Adjusted origination charges
- Escrow account information
- Total estimated settlement charges.
- Charges for All Other Settlement Services.
DTI
This stands for debt-to-income ratio. A DTI is calculated in two forms if your mortgage underwrites the evaluation of your application. The first form is known as your front-end or top-end ratio, and this represents your housing expenses divided by gross income (before taxation). The other form is called the back-end or bottom end ration. This is considered as the most important number; it would mean dividing monthly obligations (for example, car payment, credit cards, housing expenses and student loan payment) by your gross income.
If you are able to internalize the terms used before searching for a home loan, you will be more comfortable when talking to home lenders.
