When you go to apply for a mortgage in the first step to becoming a home owner, you may feel like you’ve been dropped off into some remote land where the language is alien to you. You are not alone!
At SMC, we try to keep the jargonish language to a minimum, but somewhere in your home buying journey you may come across some terms and scratch your head in wonder. Luckily, Trulia has compiled a list of commonly used and misunderstood acronyms used in the industry.
ARM – Adjustable Rate Mortgage: Fixed rate mortgages means just what the name implies, the interest rate doesn’t change for the life of the loan. On an ARM, the interest rate and payment amount may change from time to time.
DTI – Debt-to-income: The DTI ratio is what is used to determine how much home you can afford based on a monthly payment estimate, by comparing what you make to what you owe in bills every month.
IO – Interest Only: These are payments where the entirety of the payment goes towards interest, which can allow for a lower payment in the beginning of the life of the loan.
PMI – Private Mortgage Insurance: PMI is an insurance fee that is required when you make a down payment that’s less than 20%.
For more demystification of acronyms, go to Trulia http://www.trulia.com/blog/arm-pim-mip-wtf-decoding-mortgage-acronyms/