Home Loan Abbreviations Every Homebuyer Should Know

Home Loan Abbreviations and Acronyms

Having a conversation with your mortgage Lender or filling out the required paperwork for a home loan can seem daunting when you start hearing terms and acronyms that you have never heard before.

Here is a list of common abbreviations and acronyms your Lender may use at some point in the process. Use this guide to help you understand exactly what your Lender is talking about from the very beginning so that you can sail smoothly right to the very end when you get the keys to your new home!

Most Common Home Loan Abbreviations

  • APR = Annual Percentage Rate: calculates the yearly interest rate of your loan along with any fees and additional charges you may have to pay. It is the true cost of your loan.
  • ARM = Adjustable Rate Mortgage: a mortgage loan with a fluctuating payment and interest rate that’s fixed for a certain period of time (3, 5, 7 or 10 years) — and then adjusted once (sometimes twice) a year.
  • BWR = Borrower: primary applicant looking to borrow money in the form of a mortgage.
  • CCPA= Consumer Credit Protection Act: helps guarantee American consumers fair credit practices.
  • CD = Closing Disclosure: contains all final costs for the mortgage and must be provided to borrower at least three business days prior to closing.
  • CBWR = Co-Borrower: Secondary applicant on the mortgage application.
  • DTI = Debt to Income Ratio: how much income you receive compared to what you spend in debt payments each month.
  • DP = Down Payment: the amount of money you are able to put down or the amount required by the Lender to put down at closing.
  • ECOA = Equal Credit Opportunity Act: law that says a creditor cannot discriminate against an applicant based on race, color, religion, national origin, sex, marital status, age, if they are on public assistance, or if they have exercised their rights under the CCPA.
  • EMD = Earnest Money Deposit: the good faith deposit you put down on a home that shows how serious you are about committing to purchasing the home.
  • Fannie Mae = Federal National Mortgage Association: a government sponsored enterprise created by Congress to allow more people to have access to mortgages. Must conform to Fannie Mae guidelines (conforming loan).
  • FCRA = Fair Credit Reporting Act: assures your information in the files of consumer reporting agencies are accurate and fair and that your privacy is protected.
  • FDIC = Federal Deposit Insurance Corporation: an independent federal agency that insures your deposits in your bank up to $250,000 per depositor.
  • Freddie Mac = Federal Home Loan Mortgage Corporation: a government sponsored enterprise created by Congress to allow more people to have access to mortgages. Must conform to Freddie Mac guidelines (conforming loan). Freddie Mac is similar to Fannie Mae (which came first), and was added to create even more opportunity for homebuyers.
  • FHA = Federal Housing Administration: the largest insurer of residential mortgages which is guaranteed by the federal government and offers low down payment requirements.
  • FICO = Fair Isaac Corporation: named after the company that created the industry standard credit scores that most Lenders use to assess credit risk. It’s the individual credit score ranging from 300-850 and is calculated by taking into account your debt, credit history, payment history and type of credit used.
  • FRM = Fixed Rate Mortgage: when your mortgage rates and payments are fixed throughout the entire loan.
  • Ginnie Mae = Government National Mortgage Association: the guarantee agency for Federally Guaranteed mortgages by VA, FHA, RHS and PIH. The only Mortgage Backed Securities (MBS) that are guaranteed by the government.
  • HELOC = Home Equity Line of Credit: a revolving line of credit that is based on the equity of the property. It’s a loan with the collateral being the equity in the home.
  • HUD = Housing and Urban Development: the primary housing and lending authority on regulations in the U.S. All laws passed by Congress are administered by HUD.
  • LE = Loan Estimate: a form that provides disclosures for certain costs, features and risks of the loan you're applying for; must be provided within 3 days after application.
  • LO = Loan Officer: your Lender.
  • LOC = Line of Credit: financing where your credit is extended for a certain time period that you can draw from whenever needed. You make payments when you draw from it and once it is paid off, it is available for reuse.
  • LOX = Letter of Explanation: a short statement your Lender may ask you to provide to explain why something occurred. It's designed to help the Lender understand a circumstance or situation better so they can qualify you for a loan.
  • LTV = Loan to Value Ratio: the ratio the Lender uses that divides the amount borrowed by either the appraised value or the purchase price. The Lender will have a maximum they will accept as you are applying for your loan.
  • PIH = Public and Indian Housing: the federal agency that guarantees mortgages.
  • PITI = Principal (loan amount), Interest (charged rate to borrow money), Taxes (real estate taxes) and Insurance (homeowners insurance required by Lender) — This is the total monthly expense for your home and contains the four main components of your mortgage payment.
  • PMI = Private Mortgage Insurance: required by Lenders for borrowers whose LTV ratio is less than 80% on conforming mortgages to add protection for the Lender against default. It’s calculated into your monthly mortgage payment. Because of PMI, a borrower can purchase a home with less than 20% down. Mortgage Insurance Premium (MIP) is similar but it's designed just for FHA mortgages—paid both upfront and with monthly payments.
  • POC = Paid Outside of Closing: if you see this on your documents, it means you have already paid it prior to closing.
  • POF = Proof of Funds: Bank Statement or other document that proves you can afford to pay back the terms of the loan.
  • PPP = Pre-Payment Penalty: penalty charged for paying your loan off early.
  • RESPA = Real Estate Settlement Practices Act: Federal Law that regulates what’s allowed or not allowed in the sale and purchase of residential real estate. It helps prevent collusion or kickbacks among industry professionals to protect consumers.
  • TIL = Truth in Lending Disclosure: former name of TRID (see below) which ensured that borrower is receiving accurate estimates for loan costs.
  • TRID = TILA & RESPA Integrated Disclosures: new disclosure law enacted in 2015 that states what information has to be provided to the borrower, and how soon it must be provided after application and before closing.
  • USDA/RHS = United States Department of Agriculture/Rural Housing Services Loans: offered through the Rural Department of Business and Industry, guaranteed by the federal government to help develop businesses and improve the economy and climate of rural communities. USDA loans are zero-down payment mortgages for rural and suburban applicants who typically can’t obtain traditional mortgage financing and don’t have a lot of wealth.
  • VA = Veterans Administration: guaranteed mortgages by the federal government—100% guaranteed up to a certain amount, which means zero-down payment and only available to members of the military, their immediate family and veterans of the service.
  • VOD = Verification of Deposit: when a bank verifies funds in your account and provides balance over a specified period of time.
  • VOE = Verification of Employment: your Lender will verify with your employer to make sure you are employed.
  • VOM = Verification of Mortgage: Lender verifies timely payments.
  • VOR = Verification of Rent: Landlord verifies timely rent payments.
  • W-2 = tax forms your employer provides you every year that shows your total income for the year.

If you have read through this list and still have questions, don’t hesitate to ask your Lender for clarification. Always know what you are reading before you sign anything! If you don't have a mortgage Lender yet, feel free to let us know and we'd be happy to get one in touch with you.

Want more homebuying advice? Nestiny is a great place for homebuyer education and to help you gauge how ready you are to buy a home. Journey Homeward allows you to enter all your wants and needs while the True Affordability Tool will break down your budget, showing what you can comfortably afford. You will also receive a Ready Report that will give you a vital head start in the home buying journey, saving you valuable time and money.

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