Purchasing a home or refinancing your home can be an overwhelming process. Not only are you dealing with the largest chunk of debt that most people ever undertake, the amount of paperwork can be cumbersome. Knowing the mortgage language and understanding what the documents actually mean that are part of your loan is of the utmost importance. Following are some of the significant documents and acronyms that you will come across in the mortgage loan process.
GFE—Good Faith Estimate
Breaks out each and every fee that is associated with your loan, whether paid up-front or from the loan proceeds
TIL—Truth In Lending
Calculate the actual total cost of your loan. I may look confusing, but you can calculate this figure easily:
Total cost = monthly payment x 12 months each year x number of years in loan term
DTI—Debt To Income
This is a ratio that lenders look at in order to assess a borrower’s ability to pay back the loan. The DTI compares your monthly debts, per the credit report, to the income that you bring in each month. This debt ratio does not include monthly bills such as utilities, groceries, insurance or other items not reporting to the credit bureaus.
The mortgage note details all aspects of the loan: term, rate, payment
HOI—Home Owners Insurance
The amount of homeowner’s insurance that you have for your home should be comparable with replacement value of your home and its contents. When you take out a mortgage loan, the lender will require that the amount of your homeowner’s insurance is, at a minimum, enough to cover the amount of the loan that you are taking out.
R/T Refi—Rate and Term Refinance
This type of loan refers to simply refinancing your current mortgage loan for a new rate and new term.
This type of loan refinances your mortgage, as well as adding in other bills, such as credit cards, automobile loans, or other personal debts.
LOC—Line of Credit
A line of credit is typically a second mortgage; your current home loan is untouched and remains the primary lien on your home. This can be used to take cash out or consolidate and pay off other debts from equity that you have in your home.