We all do it within our own industries – we toss acronyms around in written and verbal communication as if everyone will be familiar with their meaning. And just like in your area of expertise, you will see acronyms all over the place in the real estate world. Some of them have become common knowledge, while others may be confusing to even the veteran home buyers. Here’s a quick list of some of the most widely used home buying acronyms, along with their meaning.
MLS: Multiple Listing Service
You’ve heard the term MLS and probably used it yourself when looking for a home, but did you know what it stood for? The multiple listing service is a giant database of available properties on the housing market. The list is split up into hundreds of different regions to make searching easier. Searching of properties that are listed in the MLS is usually done via a real estate agent’s website or through an aggregating site such as Zillow or Redfin. However, your agent can send you updated listings as soon as they hit the MLS system so you will be the first one to know about available properties that match your needs.
PITI: Principal, Interest, Taxes, and Insurance
Principal, interest, taxes, and insurance are are the four things you are actually paying when you make a mortgage payment. It’s good for you to be able to recognize what each of the components of PITI are because at least at first, you will pay more toward the interest on the mortgage than the loan amount itself. The longer you remain in the home, the more you will start to pay off more of the principal, or initial loan amount.
FHA: Federal Housing Administration
The Federal Housing Administration, or FHA, is a mortgage insurer that offers a variety of home loans and home buying assistance programs. Many of these programs are designed to help people purchase homes that they otherwise couldn’t afford. Loans that are FHA-insured usually offer more flexible credit qualifications and a lower down payment. The downside for some people is that an FHA loan will require you to pay for mortgage insurance. Also, FHA loans are still serviced by mortgage providers, so specific interest rates and loan terms will depend on the lender you choose.
PMI: Private Mortgage Insurance
If you are unable or uninterested in putting 20% of a home’s purchase price down on your home, you will likely be required by your lender to have PMI – private mortgage insurance. Unlike policies that protect your home or your health, PMI is insurance that you pay for, but it protects the lender not you in the event that you are unable to continue making your mortgage payments. The good news is, you can refinance your home at a later date when you have built up more equity in the home, and have PMI removed from your monthly payment.
HOA: Homeowners Association
When you are looking for a home, almost every home you view that is located within a neighborhood will have an Homeowners Association that you will pay dues to. An HOA is responsible for maintaining common areas throughout your neighborhood, from landscaping at the entrance to the upkeep of amenities such as the pool, tennis courts and clubhouse. The HOA is also responsible for setting rules for how homes should look in order to keep property values up throughout the community. In some cases, particularly in the case of a condominium development, HOAs may also handle utilities such as internet, cable, and gas.