11 Acronyms Every First-Time Home Buyer Should Know
Buying your first home can feel overwhelming. From mortgage rates to closing costs, all of the new terminology can be confusing. To help you navigate the process, we’ve compiled 11 key acronyms every first-time home buyer should know. Understanding these terms can help you make informed decisions as you take the big step toward homeownership.
APR (Annual Percentage Rate)
The APR is annual cost of a loan. It includes both the interest rate and any required fees, giving you a more accurate picture of the loan’s true cost. When comparing mortgages, a lower APR generally means a more affordable loan overall.
ARM (Adjustable-Rate Mortgage)
An Adjustable-Rate Mortgage starts with a fixed interest rate for a set number of years, often 5, 7, or 10. After that period, the interest rate adjusts annually based on market rates. Your monthly payment can increase or decrease over time, so it’s important to understand how rate adjustments could affect your budget.
CD (Closing Disclosure)
A Closing Disclosure is the final document that outlines the exact terms, fees, and costs of your mortgage. It must be provided to you by your lender at least three business days before closing. The CD will indicate your “cash to close,” which is the amount you will need to pay on closing day.
EMD (Earnest Money Deposit)
An Earnest Money Deposit or “good faith deposit” is money you include with your offer to show the seller that you are serious about purchasing the home. This deposit is held in an escrow account and is usually applied to your down payment or closing costs once the sale is finalized.
FHA (Federal Housing Administration)
FHA loans are mortgages insured by the Federal Housing Administration. These loans allow lower down payments and more flexible credit requirements, which make them popular among first-time buyers.
FRM (Fixed Rate Mortgage)
A Fixed Rate Mortgage has an interest rate that stays the same for the entire length of the loan, typically 15, 20, or 30 years. This means your principal and interest payments will not change, which makes long-term budgeting easier. FRMs appeal to buyers who prefer predictable monthly payments.
HOA (Homeowners Association)
A Homeowners Association manages shared spaces and enforces community rules in certain neighborhoods, townhomes, and condo communities. If you buy a home within an HOA, membership is usually required, and you will likely pay fees monthly, quarterly, or yearly to support maintenance, amenities, and community services. HOAs set rules called covenants, conditions, and restrictions (CC&Rs) that can regulate paint colors, yard upkeep, parking, pet guidelines, and more. Reviewing the rules and fees before buying helps ensure the community fits your lifestyle and budget.
LE (Loan Estimate)
A Loan Estimate is a document you receive shortly after applying for a mortgage. It outlines your estimated interest rate, monthly payment, and closing costs so you know what to expect before committing. This form helps you compare lenders and choose the loan that best fits your financial needs.
PITI (Principal, Interest, Taxes, and Insurance)
The PITI represents your full monthly mortgage payment, which includes the principal balance, interest charges, property taxes, and homeowners insurance. Some lenders may also include HOA fees in this estimate. The PITI helps you plan your budget and see the true monthly cost of owning your home.
PMI (Private Mortgage Insurance)
Private Mortgage Insurance is insurance that protects the lender if you stop making your mortgage payments. It is typically required when your down payment is less than 20 percent. PMI increases your monthly costs but allows you to buy a home sooner, and in many cases it can be removed once you build enough equity.
PYNH (Protect Your New Home)
Okay, maybe this isn’t a standard acronym—but it should be! Your home is likely one of your largest investments, and protecting it is just as important as understanding it. A comprehensive homeowners insurance policy from Alfa® can give you the reliable coverage you need. Contact your local Alfa Insurance agent today for a free quote and make sure your new home is fully protected.
All coverages are subject to deductibles and policy limits. This is not an insurance policy. It is intended only to provide a general description of Alfa Insurance® and/or its product lines and services. An actual policy contains the specific details of the deductibles, coverages, conditions and exclusions. Your Alfa® agent can explain the policy and benefits and answer any questions you may have before you buy.