5 Mortgage Acronyms You Should Know
In the world of mortgage lending, the details can get to be pretty confusing for those who don't work in the industry every day. The verbiage of mortgage loan documents can be a bit overwhelming, especially when seemingly random acronyms are thrown into every document as if everyone should be born with the knowledge to know what they mean. We understand that sometimes loan documents can be difficult to understand. That's why we encourage you to contact us with any mortgage questions you might have. This week, we're sharing with you 5 common mortgage acronyms you'll likely see on documents if you're getting a loan.
1. PMI is Private Mortgage Insurance.
PMI allows you to finance a home with less than a 20% down payment. For an extra monthly cost to you, PMI provides default insurance to the lender. Thinking of saving more to avoid PMI? Accumulating what can be tens or even hundreds of thousands of dollars for a down payment is a challenge for even the most industrious savers. Delaying a purchase while rates and prices rise may be more costly than PMI in the long run. PMI allows you to buy what you want now vs. what could end up being far less of a home after you’ve managed to save a larger down payment later.
2. LTV is Loan To Value.
An acronym often encountered in the home buying or refinancing process, LTV describes loan amount as a percentage of the purchase price or value of property. For example, an $80,000 loan on a $100,000 property equals an 80% LTV. You can also think of LTV as the inverse of your down payment. If you put 10% down, your LTV will be 90%. The LTV may be slightly higher if costs such as upfront mortgage insurance or other funding fees are added to the loan amount.
3. LLPA is Loan Level Price Adjustments.
LLPAs are upfront premiums added to the cost of a loan to account for circumstances that are perceived to increase risk. High loan-to-value ratios, credit scores, property type, occupancy and the various combinations of these factors impact LLPAs. For example, a borrower with a high credit score who purchases a single-family home as a primary residence with a 30% down payment will likely be subject to few, if any, LLPAs. A lower-credit score buyer using a small down payment to buy a condo may incur several LLPAs. LLPAs are one reason why advertised rates rarely tell the full story. Only quotes that take into account all factors for borrowers, property, use and occupancy can be accurate.
4. PITI is Principal, Interest, Taxes, & Insurance.
These are the components of your typical mortgage payment. Some loans can be "interest only" and exclude principal. Some loans have private mortgage insurance (PMI) or mortgage insurance (MI). Some properties have a common/maintenance charge (condos & co-ops), and some homes will have a homeowner's association fee (HOA). Beyond your payment, it is wise to budget for some maintenance expense. The cost of upkeep for your home will vary with the age, type, size, structure and materials used.
5. LPMI is Lender Paid Mortgage Insurance
LPMI is exactly what it sounds like—the lender pays for the mortgage insurance. The fact that someone else is paying for it doesn't make it free, but depending on your circumstance, it could save you some cash. A price adjustment for LPMI is typically reflected in a higher interest rate. Still, some borrowers can benefit from lower monthly payments and greater potential tax deductibility. Plus, the overall loan cost can be lower than for loans with conventional mortgage insurance.
Now, this is just the tip of the iceberg on common terminology used in mortgage lending documents, but it's a great start to help you make more sense of those terms. MHQ Mortgage Headquarters has been in the mortgage lending business for more than 20 years, and we'd love to answer any questions you may have. If you find that you're having trouble understanding your loan documents, give us a call or stop by! We'll be happy to help you understand your commitment.
Mortgage Headquarters of Missouri, Inc
4824 Osage Beach Parkway, Suite 1
Osage Beach, MO 65065
Office: (573) 302-9990
Toll Free: (888)799-1206
Fax: (636)648-9917
NMLS # 1229111
1. PMI is Private Mortgage Insurance.
PMI allows you to finance a home with less than a 20% down payment. For an extra monthly cost to you, PMI provides default insurance to the lender. Thinking of saving more to avoid PMI? Accumulating what can be tens or even hundreds of thousands of dollars for a down payment is a challenge for even the most industrious savers. Delaying a purchase while rates and prices rise may be more costly than PMI in the long run. PMI allows you to buy what you want now vs. what could end up being far less of a home after you’ve managed to save a larger down payment later.
2. LTV is Loan To Value.
An acronym often encountered in the home buying or refinancing process, LTV describes loan amount as a percentage of the purchase price or value of property. For example, an $80,000 loan on a $100,000 property equals an 80% LTV. You can also think of LTV as the inverse of your down payment. If you put 10% down, your LTV will be 90%. The LTV may be slightly higher if costs such as upfront mortgage insurance or other funding fees are added to the loan amount.
3. LLPA is Loan Level Price Adjustments.
LLPAs are upfront premiums added to the cost of a loan to account for circumstances that are perceived to increase risk. High loan-to-value ratios, credit scores, property type, occupancy and the various combinations of these factors impact LLPAs. For example, a borrower with a high credit score who purchases a single-family home as a primary residence with a 30% down payment will likely be subject to few, if any, LLPAs. A lower-credit score buyer using a small down payment to buy a condo may incur several LLPAs. LLPAs are one reason why advertised rates rarely tell the full story. Only quotes that take into account all factors for borrowers, property, use and occupancy can be accurate.
4. PITI is Principal, Interest, Taxes, & Insurance.
These are the components of your typical mortgage payment. Some loans can be "interest only" and exclude principal. Some loans have private mortgage insurance (PMI) or mortgage insurance (MI). Some properties have a common/maintenance charge (condos & co-ops), and some homes will have a homeowner's association fee (HOA). Beyond your payment, it is wise to budget for some maintenance expense. The cost of upkeep for your home will vary with the age, type, size, structure and materials used.
5. LPMI is Lender Paid Mortgage Insurance
LPMI is exactly what it sounds like—the lender pays for the mortgage insurance. The fact that someone else is paying for it doesn't make it free, but depending on your circumstance, it could save you some cash. A price adjustment for LPMI is typically reflected in a higher interest rate. Still, some borrowers can benefit from lower monthly payments and greater potential tax deductibility. Plus, the overall loan cost can be lower than for loans with conventional mortgage insurance.
Now, this is just the tip of the iceberg on common terminology used in mortgage lending documents, but it's a great start to help you make more sense of those terms. MHQ Mortgage Headquarters has been in the mortgage lending business for more than 20 years, and we'd love to answer any questions you may have. If you find that you're having trouble understanding your loan documents, give us a call or stop by! We'll be happy to help you understand your commitment.
4824 Osage Beach Parkway, Suite 1
Osage Beach, MO 65065
Office: (573) 302-9990
Toll Free: (888)799-1206
Fax: (636)648-9917
NMLS # 1229111
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