House hunting and homebuying comes with its own unique language, littered with all kinds of acronyms, words and phrases.
Veterans United maintains an in-depth mortgage glossary. This short list is a good introduction:
ARM – Adjustable-rate mortgages often start with a lower rate than fixed-rate mortgages, but then the interest rate is subject to change up or down based on certain factors, including the economy at large.
APR – The Annual Percentage Rate reflects the total cost of borrowing. It includes your interest rate, often called a note rate, and other costs and charges. Be sure to compare interest rates and APRs. Competing loans may have similar note rates, but the one with the lower APR will cost you less.
BAH – Basic Allowance for Housing is an allowance for active service members when government quarters aren’t available. This allowance can be counted as monthly income, which can help military members prequalify for a VA home loan.
Closing (date) – On the closing date, the sale of the home is complete. Military borrowers sign mortgage papers, take care of any closing costs not covered by the seller and officially become homeowners.
Certificate of Eligibility – This is an official document that confirms a veteran’s ability to participate in the VA loan program and detailing what, if any, entitlement exists. Some VA-approved lenders can get a Certificate of Eligibility in minutes. You don’t need a COE to start the loan process.
Debt-to-income ratio – A DTI ratio measures how much money you owe each month for housing costs and other payments compared to how your monthly income. The VA uses a DTI ratio of 41 percent as a benchmark, but veterans with a higher rate can still secure financing.
EEM – The Energy Efficient Mortgage is a specialized mortgage that allows veterans to make energy-efficient improvements to a home they’re purchasing or refinancing. Veterans can add up to $6,000 to the loan amount provided they can verify the cost of improvements or prove the efficiencies will result in savings.
Fixed-rate mortgage – During the life of the loan, the interest rate will not change.
NOV – Notice of Value (NOV) is another term for the VA appraisal, which spells out the independent expert’s assessment of the property’s value. Ultimately, it’s up to a lender’s staff appraisal reviewer to issue the final notice of value.
Origination fee – The Department of Veterans Affairs allows lenders to charge an origination fee of 1 percent of the loan for services and costs.
PITI – The acronym stands for Principal, Interest, Taxes and Insurance. These are the four pillars of a veteran’s monthly mortgage payment.
Preapproval – This basically means a lender has preapproved you for a specific loan amount. Sellers and real estate agents value preapproval more than prequalification. But this is not a guarantee from a lender or a binding agreement on the homebuyer.
Rate Lock – Once borrowers sign a purchase agreement, they can usually lock in a specific interest rate. Rate locks are good for a set number of days ; common periods are 15, 30 and 45 days.
Underwriters – These industry professionals look over a borrower’s loan file and give an ultimate “Yes” or “No” on the loan. It’s their job to ensure the loan meets guidelines and regulations and all the documentation is in place.
Zero money down – VA borrowers can purchase a home without the need for a down payment (nearly 9 in 10 VA buyers do just that). FHA loans require a minimum down payment of 3.5 percent. Conventional borrowers usually have to put up at least 5 percent and pay private mortgage insurance.
While this cursory list only scratches the surface of the lexicon used in the homebuying industry, it’s a good primer for the acronyms and phrases to come.
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