The average consumer is often confused when dealing with professional creditors because they tend to use a multitude of acronyms. Unfortunately, this confusion and lack of understanding can cost you in the future.
In practice, these acronyms are used so often that almost no one uses real words. The consumer often feels that creditors speak another language. If you are about to make one of the most important purchases in your life, your home, it is important to understand what the creditor is telling you. So, the whole process will run better and without frustration on your side.
Here are the 10 most common acronyms you need to know:
- PHTV (ARM): Note that Variable Rate Mortgages offer you interest rates that will fluctuate throughout your mortgage, unlike fixed rates. Usually, the consumer can opt for variable rates for a period between 3 and 10 years. Subsequently, a new arrangement will be made. Also, note that your monthly payments will vary based on variable rates.
- DPR ( DTI): Debt versus income is the part of your income that is allocated for the repayment of debts such as student loans, credit cards, etc. Usually, creditors request a debt ration of less than 55% of your monthly income ( note that each creditor requests a different rate )
- EBF (WDM in English): A good faith estimate is an important document that contains all significant details of your loan. These details include loan type, amount, closing costs, the cost of a credit report, the cost of the escrow, the valuation value, and so on. The creditors are obliged by law to provide you with this document.
- MCH (HELOC): The Mortgage Line of Credit is a loan or line of credit that is backed by an existing mortgage or the residual value of your home.
- LDE (LOX): A Letter of Explanation is a letter explaining to you the negative aspects that have been found in your credit history and application. Among the details that could have a negative impact on your chances of getting a loan, there are late payments for example.
- RPVT (LTV): The Total Value Loan Report calculates the value of the loan in relation to the market value or the purchase price of the property, whichever is lower, expressed as a percentage. Usually, creditors are looking for an RPVT of 80%. Note that some creditors offer alternative solutions to people who wish to increase their RPVT.
- CAH (MIP): The cost of mortgage insurance is a charge that is added to your monthly bill. This is a form of insurance for the creditor who loaned money to people whose RPVT was above 80%.
- PITA (PITI): PITA stands for Main Party, Interest, Taxes, and Insurance. It’s a kind of mortgage payment that includes all the other acronyms.
When you are looking for a home, it is better to be prepared. During the process, you will have to fill out many forms, read a lot of documents, sign a lot of papers. If you go ahead, the whole process will be better. Although we suggest that you seek the assistance of a professional during your mortgage process, we also suggest that you do not hesitate to contact your creditor and ask him all the necessary questions. They are here to help you!