6 Common Home Loan Mortgage Abbreviations - Guild Mortgage Tacoma

6 Common Mortgage Abbreviations

As a first time homebuyer, you may be overwhelmed with mortgage abbreviations and acronyms when you’re filling out your pre-approval application. Words like FHA, DTI, ARM, MI, MLS and EMD may have completely different meanings to you, or have no meaning at all. Let’s take a closer look at the mortgage abbreviations home buyers need to know.

So many mortgage abbreviations and acronyms, here are six you’ll want to know.

FHA

Federal Housing Administration

An FHA loan is a US Federal Housing Administration mortgage insurance backed loan which is provided by an FHA-approved lender. FHA loans are known for accepting down to 3.5% down payment, in comparison to the conventional loan’s 20% down payment requirement. FHA loans also allow down to a 580 credit score as opposed to the conventional loan’s 620. FHA is a common choice for first time home buyers.

DTI Ratio

Debt to Income Ratio

When lenders are processing your application they want to see if you are able to pay a mortgage with your funds including your income and taking into consideration all of your monthly debts. For example, if you are looking to buy a $400,000 home, and you and your spouse make $120,000 a year combined, but you have to pay for student loans for both of you, 2 car payments, 2 car insurance payments, health insurance, and high retail credit cards, your DTI ratio would be higher than if you made $120,000 a year combined and only had to pay retail credit cards and car insurance.

ARM

Adjustable Rate Mortgage

While you may think that ARM is the area between your hand in your shoulder, in mortgage terms it’s a type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. A 7-year ARM is a loan with a fixed rate for the first 7 years (based on the rate you first buy your home), and an adjustable rate every year thereafter. Because the interest rate can and will change after the first 7 years, the monthly payment can also change.

MI

Mortgage Insurance

At first MI looks like an abbreviation for the state of Michigan. MI means mortgage insurance, and you’ll sometimes see it written as PMI (private mortgage insurance) or LMPI (lender-paid mortgage insurance). Mortgage insurance is required if your down payment on a home is less than 20 percent of the appraised value or sale price. If you go with an FHA loan, you will have mortgage insurance since you’re able to pay down to 3.5% down.

MLS

Multiple Listing Service

You might first think MLS stands for a professional soccer organization in the U.S., but when it comes to real estate, MLS refers to the Multiple Listing Service. The MLS is a private offer of cooperation and compensation by listing brokers to their real estate brokers to share information about properties for sale. Many photos and bits of information found on sites such as Redfin and Zillow are courtesy of the MLS.

EMD

Earnest Money Deposit

Earnest money is a deposit made to a seller showing the buyer’s good faith in a transaction. Earnest money allows the buyer additional time when seeking financing. When buying new construction, it’s typical to pay the earnest money when you agree to buy the home a few months before the actual home is built. The amount of the EMD depends on the demand for homes. In a slow real estate market where the seller isn’t getting many offers you may only have to pay $500-$1000, but in a fast moving market you may have to make a bigger deposit, perhaps up to 2% or 3% of the offer amount. Your lender will communicate the exact earnest money needed to pay.

 

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