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10 Acronyms Homebuyers Need to Know


PMI, APR, LTV…these unfamiliar acronyms don’t need to bewilder or intimidate uninitiated homebuyers.

To help you negotiate the homebuying process like a pro, Freddie Mac is sharing definitions of 10 key acronyms you’ll encounter as you meet with lenders, make a down payment and pay back your loan.

APR (Annual Percentage Rate)

The APR tells you the annual cost of borrowing money based on the loan amount, interest rate and certain others fees. Use it as the bottom-line number to shop and compare rates among lenders.

FRM (Fixed-Rate Mortgage)

The most common type of mortgage, an FRM, has an interest rate that doesn’t change, giving you stability over the life of the loan.

ARM (Adjustable-Rate Mortgage)

An ARM usually offers lower monthly payments at the outset, but after three, five or seven years, payments change with interest rates and reset periodically.

LTV (Loan- to-Value)

The LTV ratio equals the amount of money borrowed divided by the home’s appraised value. It shows how much of your home you own versus how much you owe, and lenders use it to help evaluate the risk and terms of your loan.

DTI (Debt- to-Income)

Calculated by lenders to assess your ability to manage monthly payments and repay debts, DTI is the percentage of your monthly income that goes toward your monthly debt payments.

PMI (Private Mortgage Insurance)

For homebuyers making down payments that are less than 20 percent of the home purchase price, PMI is a required insurance that protects lenders from losses if borrowers are unable to pay their mortgage. PMI is typically incorporated into monthly mortgage payments.

P&I (Principal and Interest)

This is the portion of your monthly mortgage payment that goes toward paying off the money you borrowed to buy your home. For most homeowners, P&I make up the majority of your monthly mortgage payment — but not all of it.

PITI (Principal, Interest, Taxes and Insurance)

Together, principal, interest, taxes and insurance make up your total monthly mortgage payment. Calculating your total monthly payment is essential for giving you a more accurate picture of the cost of homeownership than P&I alone.

UPB (Unpaid Principal Balance)

The amount of principal still owed on a loan is referred to as UPB. On a typical monthly mortgage payment, a portion of your payment is applied to the interest and a portion is applied to the principal. The following month’s interest is based on your UPB. To check how much of your payment is going towards your principal, take a look at your amortization schedule.

HOA (Homeowners Association)

Twenty percent of America’s homeowners live within a community governed by an HOA. Before buying in such a community, get a handle on how much its HOA fees are, what they cover, and how often payments are due. Typically paid monthly, quarterly, or annually, HOA fees may cover services such as trash removal, lawn care, pest control and maintenance for common areas.

For more homebuying educational tools and resources, visit myhome.freddiemac.com.

It’s easy to feel adrift in a sea of unfamiliar technical acronyms. But, studying your vocabulary now can mean greater confidence when it’s time to make one of the most important purchases of your life.

Source: 10 Acronyms Homebuyers Need to Know

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