Buying a home, especially for the first time, can feel like a complicated process. If you are new to residential lending and looking to secure a loan for an upcoming home purchase, you may encounter some mortgage jargon that is unfamiliar to you. Though it may seem overwhelming at first, it’s wise to familiarize yourself with some basic mortgage terminology before setting out on your home buying journey.

To help you feel more confident during the home buying process, here is a guide to a few essential mortgage terms you may come across.

Adjustable-Rate Mortgage (ARM)

Also known as a variable-rate mortgage, an adjustable-rate mortgage (ARM) is a mortgage in which the interest rate and monthly payments may change periodically during the life of the loan. Interest rates for ARMs are reset based on an index and can be a smart choice for homebuyers planning to keep the loan for a limited period of time.

Fixed-Rate Mortgage

Unlike an adjustable-rate mortgage, a fixed-rate mortgage is a home loan with a predetermined and fixed interest rate for the entire term of the loan. Therefore, even if market conditions fluctuate, your interest rate will not change from beginning to end. As a result, fixed-rate mortgages are a popular option for borrowers who want to be sure of their monthly payments.

Down Payment

When buying a home with a mortgage, your down payment is the percentage of your home’s purchase price that you pay upfront. The rest of the purchase price is covered by your mortgage loan, which you will pay off monthly throughout the length of your mortgage term. As a result, the larger your down payment, the lower your monthly mortgage payments will be.

Debt-to-Income Ratio (DTI)

When you apply for a loan, a lender will look at specific financial data, including your debt-to-income ratio (DTI), to determine the risk associated with you taking on another payment. Your DTI is a percentage of your gross monthly income that goes towards your other monthly expenses, including rent, credit card statements, and other debt.


While these are just a few of the many mortgage terms you will likely run into, having a basic understanding of some essential terminology will help you as you go through the home buying process. If you’re ready to purchase a home and are looking to explore all of your mortgage options, contact the professionals at Coastal Custom Mortgage today!