Top 10 Financial Terms You Need to Know

If you’re ready to purchase your first home, congratulations, how exciting! You also might be feeling like you’re about to embark on a journey full of terms you know nothing about. Never fear, we’re here to set you up for success on your homeownership adventure. So much so, that you’ll feel confident when you hear acronyms like ‘DTI’ and ‘FICO.’  

It wasn’t easy, but we’ve narrowed down the top ten glossary terms you need to know when buying a home. We thought these words needed a bit more background to ensure a smooth  homebuying voyage.  

Appraisal 

The home appraisal is when the lender appoints an independent appraiser to evaluate your dream property to determine the value of the home. This person looks for details in the home as well as comps (comparables are homes that sold in the area that align with your home) in the area. It’s important that the appraisal comes in at the contract price. If the appraisal comes back too low or too high, and could delay closing.    

Closing Costs 

Closing is the final step of the homebuying journey. Here, you’ll be expected to pay closing costs. These costs are a combination of fees charged for the loan services to include processing and closing on your loan. You might remember having seen these initially in the loan estimate. 

Down Payment 

Your down payment is a one-time cost that you’ll be responsible for paying at closing. Depending on the loan program you choose, your down payment could range from zero all the way up to 20% of the purchase price (or even more, if you choose). 

Your down payment is deducted from the overall amount of your new mortgage and will be the first bit of equity that you have in the home.

DTI (Debt-to-Income Ratio) 

Your lender will do a simple calculation taking into consideration your monthly payments as well as your monthly income, which will show your debt-to-Income-Ratio. There are a few other factors that your lender will also look at to determine your DTI such as late payments, delinquencies and hefty balances on your credit cards. The lower your debt and the higher your income, the more you’ll be pre-qualified for. 

FICO Score 

FICO is short for Fair Isaac Corporation, which is an independently operated company that aggregates all the details of your credit history and calculates a number that reflects your creditworthiness. 

 It’s essentially known as predictive analysis, and lenders will use the information to predict consumer behavior related to paying bills in a timely manner or handling large amounts of credit responsibly. This number is calculated by your payment history, outstanding balances, age of credit history, new credit lines and the type of credit lines currently in use. 

Fixed-Rate Mortgage 

A fixed-rate mortgage loan is a loan that you pay back over a certain number of years, typically 15 or 30 and has the same interest rate throughout the life of the loan. Your loan term and rate affect many parts of your mortgage and payment, including the amount you owe each month and the total interest you’ll pay, along with a few other factors.  

If you’re looking for predictability you might choose this loan option.  

Loan Estimate  

Your loan estimate is a three-page form that outlines all  the details of your prospective loan. You’ll receive the loan estimate after submitting your loan application. It will break down all costs involved in the purchase of your dream home, the cost of the loan and the other costs affiliated such as closing costs as we mentioned earlier. 

Loan Term 

The loan term is the length of time it will take for a loan to be paid off when you’re making regular payments. The time it takes to pay down your mortgage is the loan’s term, the time can range depending on the loan you choose; 15-year, 30-year, for example. 

Pre-qualified 

A pre-qualification is an estimate of how much you can borrow based on a review of your financial information to help you decide if you're ready to apply for a mortgage loan. A pre-qualification is not a guarantee of a loan, but it does help you and your mortgage banker identify what your next steps are. 

Pre-qualification is a great way to transition from thinking about buying a house to getting the loan you need to buy a house. 

Underwriting 

Underwriting is the review of your loan application to ensure you would be a good fit for a loan. Atlantic Bay also offers Upfront underwriting, sometimes referred to as “To-Be-Determined” (TBD) underwriting. This is a process where the lender issues you a conditional approval with a dollar amount within hours of meeting with you, by having all your info go through an underwriter at the beginning of the process rather than toward the end. 

While these aren’t all the terms you’ll hear on your homeownership journey, they are a few we’ve selected that will provide educational value early in the process. Print this page so you can keep this handy for when you go through the process. Don’t hesitate to reach out with any other questions you might have!