When it comes to the mortgage industry, there are likely some common phrases with mortgage acronyms that come to mind.
“What’s the APR?”
“Will I need PMI?”
“What is the borrower’s LTV?”
These are all questions that are probably thrown around for you everyday. However, for your borrowers, especially first time home buyers, using these common mortgage acronyms without further explanation will be confusing. The mortgage process may seem simple to you but can be complicated to those outside of the industry. So don’t use mortgage acronyms without explaining yourself. When you speak in layman’s terms, your borrowers will actually understand and it’ll save you the headache of a confused borrower in the long run.
Here are the most common mortgage acronyms, so that you can start making explanations a part of your vocabulary.
APR: Annual Percentage Rate
The interest rate plus any fees charged by the lender.
ARM: Adjustable Rate Mortgage
The initial interest rate of this type of mortgage is fixed for a period of time, and then varies over the life of a loan.
A measure that compares a person’s monthly debt payment to their monthly gross income.
ECOA: Equal Credit Opportunity Act
A regulation that makes it unlawful for creditors to discriminate in lending.
FHA: Federal Housing Administration
A government agency that sets construction and underwriting standards, and insures loans made by banks.
FHA Loan: Federal Housing Administration Loan
A mortgage issued by an FHA-approved lender, and insured by the FHA. Created for low to moderate income borrowers, this mortgage requires a lower credit score and down payment than more traditional loans.
FICO: Fair Isaac Corporation
A company that uses predictive analytics to create credit scores for use by lenders and credit card issuers, to help determine how likely a borrower is to repay debt.
GFE: Good Faith Estimate
A form that a lender must provide when someone applies for a reverse mortgage. It includes basic information regarding the terms of a mortgage loan offer.
HARP: Home Affordable Refinance Program
A federal program set up by the FHFA (Federal Housing Finance Agency) with the goal of helping underwater homeowners refinance their home loans.
HELOC: Home Equity Line of Credit
A way for homeowners to borrow money against the equity that they’ve built up in their home.
HUD: U.S. Department of Housing and Urban Development
A federal agency responsible for addressing housing needs in America, and enforcing fair housing laws.
IO: Interest Only
A type of loan where a borrower pays only the interest on the loan for a fixed period of time.
LOX: Letter of Explanation
A document to explain any potential unusual financial situations that a borrower might face. This could include negative items on a borrower’s credit report, self-employment, unusual deposits or withdrawals, or even gaps in employment history.
An assessment of lending risk, based upon the mortgage amount, and appraised property value.
MIP: Mortgage Insurance Premium
An insurance policy used in FHA loans if a borrower’s downpayment is less than 20 percent.
P&I: Principal and Interest
The portion of a borrower’s monthly payment that goes toward paying off the money that they borrowed to buy their home.
PITI: Principal, Interest, Taxes, and Insurance
The four components that make up most mortgage payments.
PMI: Private Mortgage Insurance
A type of mortgage insurance that may be required if a borrower’s down payment is less than 20 percent of the home’s overall purchase price.
POC: Paid Outside of Closing
Any fees or payments that take place outside of the normal title insurance and underwriting fees that take place at the time a loan closes.
QM: Qualified Mortgage
A class of mortgages that meet borrower and lender standards, as defined by the Dodd-Frank regulation.
RESPA: Real Estate Settlement Procedures Act
A federal act to provide homebuyers and sellers with complete settlement cost disclosures.
TILA: Truth in Lending Act
A federal law created to protect consumers while dealing with lenders and creditors. This declares that information such as the annual percentage rate (APR), the terms of the loan, and the total costs must be disclosed to the borrower.
VA: Department of Veterans Affairs
A federal agency that handles military veterans benefits and services.
VOE: Verification of Employment
A process through which banks and lenders review a borrower’s employment history, to help determine their eligibility for a loan.
Don’t Make Your Borrowers Decipher Mortgage Acronyms
When you speak to a lead or a client, or even type up an email to send them, use language that is as simple as possible with all mortgage acronyms spelled out. Cut out the industry-speak and you’ll engage customers in less time.
Make your communication clear, concise, and automated, and you’ll connect with more of your database, in terms they can actually understand.
After all, your borrowers don’t really care about the mortgage industry, they just want to know what those mortgage acronyms mean for their monthly payments.