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DHI MORTGAGE
MORTGAGE DICTIONARY
There are a few terms you will hear often during the mortgage process. Here are some definitions of the most common ones. Feel free to reach out to your Mortgage Loan Originator with any questions!
ARM
An ARM, or Adjustable Rate Mortgage, is a type of loan that has a fixed rate for 5, 7, or 10 years and then adjusts periodically – which can cause the monthly payment to be higher or lower. These adjustments are capped to avoid major increases during the adjustment period.
Appraisal
An expert estimate of the value of property by a licensed professional. The estimate may be based on the quality of the property, market conditions, and surrounding properties. An appraisal is used to determine if the value of your home matches your mortgage.
APR
APR, or Annual Percentage Rate, is the yearly interest costs for a loan. This differs from your interest rate because it includes fees such as mortgage insurance, closing costs, discount points, and loan origination fees.
DTI
DTI, or Debt-to-Income, is a ratio expressed as a percentage that describes your debts divided by your gross income (before taxes and deductions). DTI can affect your loan eligibility. While a high DTI can be a red flag, a low DTI improves your chances of being approved.
Escrow
Escrow is an account held by third party to disburse funds at a later time. In a mortgage, part of your monthly payment goes into an escrow account to pay your homeowner’s insurance and property taxes when they come due.
LTV
LTV, or Loan-to-Value, is a ratio that compares the amount of your loan to the appraised value of your property.
PITI
Full mortgage payments are sometimes referred to as PITI for Principal-Interest-Taxes-Insurance. Principal and interest go toward the bottom line of the mortgage, while taxes and insurance are typically held in an escrow account until they are due.
PMI
Private Mortgage Insurance is insurance that covers the lender if you stop making payments. This insurance is sometimes required when your down payment is less than 20% of the loan value.
Rate Lock
A rate lock protects you from an increase in interest rates during the loan process. While it doesn’t guarantee loan approval, it does hold the rate with your lender for a specific period of time.
Title Company
A company that specializes in examining and insuring titles to real estate.
Underwriting
Underwriting is determining the risk of making a loan to a potential homebuyer based on credit, employment, assets, and other factors, and matching this risk with appropriate rate, term, and loan amount.