If you’re preparing to purchase your first home, you should familiarize yourself with some of the housing acronyms that you will likely encounter along the way. Remember that if you don’t understand a term or step in the homebuying process, the members of your support team — housing counselor, lender, real estate agent — are there to help.
APR (Annual Percentage Rate)
The annual percentage rate tells you the annual cost of borrowing the principal loan amount. The APR includes the interest rate and also other costs to get a loan, such as discount points, insurance and closing costs. It is the number you can use to shop and compare rates among lenders.
ARM (Adjustable-Rate Mortgage)
An adjustable-rate mortgage is a loan with an interest rate that will change throughout the life of the mortgage. With this type of mortgage your interest rate adjusts after an initial period — commonly three, five or 10 years.
The debt-to-income ratio shows how much of your monthly income you’re using to pay your recurring monthly debt. Lenders typically use DTI to gauge your ability to repay a loan.
FRM (Fixed-Rate Mortgage)
A fixed-rate mortgage is a loan with an interest rate that does not change during the entire term of your loan. This is the most common type of mortgage and can provide you certainty and stability over the life of your loan.
HOA (Homeowners Association)
A homeowners association is an organization in a housing community or condominium building that creates and enforces rules for its residents. HOAs work to protect property values and ensure upkeep of common areas. They are typically funded by scheduled fees paid by residents.
The loan-to-value ratio shows you the total amount of your loan compared to the appraised value of your home. Lenders use this ratio to help evaluate risk and set the loan terms. Lenders may require borrowers with high LTV loans to purchase private mortgage insurance.
P&I (Principal and Interest)
Principal and interest are portions of your monthly mortgage payment. Principal is the money you borrowed to buy your home. Interest is money you pay to your lender in exchange for your loan. For most homeowners your principal and interest make up most of your monthly payment.
PITI (Principal, Interest, Taxes and Insurance)
Principal, interest, taxes and insurance make up your total monthly mortgage payment. Calculating your total monthly payment — not just principal and interest — will give you a more accurate picture of the total costs of homeownership.
PMI (Private Mortgage Insurance)
Private mortgage insurance is an added insurance policy that protects lenders from losses if a homeowner is unable to pay their mortgage. PMI is required for homebuyers who have a conventional mortgage and make down payments that are less than 20% of the home purchase price. Typically, PMI will be incorporated into your monthly mortgage payment.
UPB (Unpaid Principal Balance)
The unpaid principal balance is the amount of principal still owed on a loan. On a typical mortgage payment, your monthly interest is based on your UPB. You can check how much how much of your payment is going toward your principal by looking at your amortization schedule.