It is not that difficult to obtain a home loan, despite the common misconception. One of the reasons homebuyers find these loans complex is the presence of many mortgage acronyms. Discover the meaning of the principals so that you can be better prepared when you go shopping and when you are making an application.

FHA

This mortgage acronym stands for Federal Housing Administration. FHA loans are backed by the government. They are designed for low-income households, but even people with incomes around the median may qualify. These loans have a lower down payment (3.5%) compared to conventional mortgage loans and are easier to qualify for.

RMA

This is the acronym for Adjustable Rate Mortgage. These loans have an interest rate that is adjusted according to an index chosen by the lender. This means that the monthly interest rate can go up or down and reach the maximum and minimum limits established in the agreement. These loans give you the opportunity to save, but are riskier due to the fact that monthly payments may increase.

DTI

This is short for debt-to-income ratio. This ratio shows how much of your monthly income goes toward paying off loans, credit cards, and insurance policies. It is expressed in percentages. Currently, the minimum DTI requirement is 43%.

LTV

This is the mortgage acronym for loan-to-value ratio. This ratio shows the amount of the mortgage loan as a percentage of the purchase price of the property. The lower the loan-to-value ratio, the more affordable the loan.

GFE

This is short for Good Faith Estimate. This is a formal document provided by the lender to the loan applicant, usually within three to five days after the application is submitted. Provides a complete description of the estimated costs of closing the loan. It shows you what fees and charges you will incur and gives you an estimate of its size. You can expect great accuracy, but there’s no guarantee that costs won’t change. It is possible that the costs will increase until the actual closing, but this increase should not be very high.

PITI

This is the mortgage acronym for Principal, Interest, Taxes and Insurance. It shows you the total amount you will have to pay each month to cover these four costs. This is an important measure to use when comparing different home loans and their affordability.

APR

This is the acronym for Annual Percentage Rate. This rate reflects the full cost of the loan. Given this, it is higher than the interest rate. All loan costs paid to the lender are calculated at the APR. These include closing costs, discount points, and insurance premiums from the lender.

PMI

This is short for Private Mortgage Insurance, also known as lender’s insurance. The premiums are paid by the borrower but the lender is the beneficiary. It is designed to provide compensation to the lender in the event that the borrower defaults on the loan payment. Generally, home buyers should purchase PMI when they have an LTV greater than 80%.

Now you can find your way in the world of mortgages much more easily.