March 30, 2017

RIP Knowing These Common Mortgage Acronyms

If there’s one thing mortgage lenders love, it’s an acronym. From ARMs to PMI to LTV, it’s easy to get lost in a sea of jargon and miss the important meaning behind the language. Since I consider you one of my BFFs, I’ve outlined five common mortgage acronyms below:

ARM – Adjustable Rate Mortgage

Adjustable-rate mortgages have monthly payments that can move up and down as interest rates fluctuate. Most have an initial fixed-rate period where the rate doesn’t change followed by a longer period where the rate changes at preset intervals. So, don’t panic if a lender tells you they’re going to get rid of your arm in seven years. They’re likely only referring to the possibility of refinancing your mortgage into a fixed rate after your initial period.

PMI – Private Mortgage Insurance

Private Mortgage Insurance is an insurance policy to protect a lender against loss if a borrower defaults. PMI is a percentage of the loan amount, so the more you borrow, the more PMI you’ll pay. Of course, if you have a 20% or more down payment, you don’t have to pay PMI at all.

LTV – Loan-to-Value

The loan-to-value ratio is calculated as the amount of the mortgage divided by the appraised value of the property, expressed as a percentage. For example, if you borrow $80,000 to purchase a home appraised at $100,000, you would have an LTV ratio of 80% (80,000/100,000). In general, the higher the LTV, the riskier the loan is for the lender.

Fannie Mae – FNMA – The Federal National Mortgage Association

I don’t know about you, but whenever I hear Fannie Mae, I look around for Mint Meltaways. Well, it turns out there are two Fannie Maes, and this one never has any candy. Mortgage Fannie Mae has a mission of bringing liquidity, stability and affordability to the U.S. housing market. It does this by purchasing mortgages from banks and then selling them through a process called securitizing. Once the mortgages are purchased, banks are freed up to make more loans. It’s a beautiful circle of lending, and some say that’s better than chocolate.

Freddie Mac – FHLMC – Federal Home Loan Mortgage Corporation

Freddie Mac essentially offers the same benefits as Fannie Mae. They both play the same important role in our economy, so picking a favorite isn’t necessary.

I hope this knowledge leaves you more confident the next time you speak to a loan officer. Better yet, you can find a lender that carefully explains the mortgage process and doesn’t leave you feeling confused. Give your brain a break from all this research and contact United Home Loans below or at 708-531-8388.

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