Every industry has its own lingo—some might call it alphabet soup. And while, once you know, you know, if it’s your first foray into something new, the jargon makes it easy to feel a bit lost. Home buying is no exception.
If you’re looking to purchase a new home in the DMV, here’s a quick reference on some of the acronyms you’re bound to encounter.
APR: Annual Percentage Rate
This term refers to the amount you’ll pay each year for the principal loan amount, including the interest rate and other things that factor into the loan payment amount, like insurance, closing costs, and discount points. It’s different from your interest rate in that the interest rate is the base rate of your mortgage, but the APR includes those other things in addition to the base interest rate.
ARM: Adjustable-Rate Mortgage
An adjustable-rate mortgage typically has a lower interest rate for the first several years of a loan. While that term can vary (usually three, five, seven, or 10 years), at the end of the fixed term, the mortgage rate changes on an annual basis based on a pre-selected index in major financial markets for the remainder of the loan term. In a nutshell, it gives the borrower a lower interest rate for the early years of the loan (compared to fixed rate mortgages) but lacks predictability later on.
BOYL: Build on Your Lot
This is a term that appeals to home buyers who already own land and are looking to develop it. While some major national builders will construct homes outside of their own developments, if this is something you’re interested in, there’s a good chance you’ll need to find a custom builder.
CC&Rs: Covenants, Conditions, and Restrictions
These are most often found when considering a home that’s part of a homeowner association community. They refer to the pre-established rules of the community a given home is part of and will cover everything from landscaping requirements and maintenance to allowable changes to your home’s exterior.
FHA: Federal Housing Administration
If you’re a first-time home buyer, you may encounter this one through the term “FHA Loan,” which helps first-time buyers through lower down-payment requirements than the traditional requirement for 20 percent down.
FRM: Fixed-Rate Mortgage
In contrast to an ARM, a fixed-rate mortgage offers borrowers a level of consistency and predictability throughout the term of their home loan. Unless you choose to refinance, your rate will remain the same for the loan’s full term.
HOA: Homeowners Association
Many homes in our area belong to a community with a homeowners association. These communities typically offer a certain level of consistency throughout the neighborhood and operate on a set of CC&Rs each homeowner has agreed to live under during the buying process. They typically require an additional fee—usually on a monthly or quarterly basis—with the cumulative fees going toward neighborhood amenities and maintenance to help make the community an appealing place to live and to protect home values to a certain degree.
PMI: Private Mortgage Insurance
This typically comes into play only when the borrower is paying less than 20 percent down on a home, as is often the case with an FHA loan. It primarily protects the lender in case of default, but also makes it possible for people who may not have the full 20 percent in savings to buy a home.
