The first time you go through the home buying process is filled with a lot of new terminology that you're completely unfamiliar with. Make sure you understand what all these financial terms are to have success when working with your realtor and home mortgage company.

Earnest Money

Once your offer to a seller is accepted, they'll ask that you provide earnest money to move forward with the home buying process. This is money that you pay to the seller as a part of the home's price, and it's to ensure that you will not walk away from the sale without a good reason. You can get earnest money back in certain situations, such as a home inspection comes back with bad results. However, you'd lose this earnest money if you simply change your mind about buying the home.

Debt-to-Income Ratio

Your mortgage lender will look at your debt-to-income ratio when deciding to offer you a loan. This is how much of your monthly income goes towards paying off debts. For example, if you make $3,000 a month and have $1,000 going towards a car payment and student loans, you'd have a 33% DTI. It is common for mortgage lenders to now allow more than a 43% DTI when approving a mortgage, which is based on the amount of debts held before having the mortgage.

Escrow

Your lender may require that money for your home is put into escrow in order to make payments. This essentially means that you put money into an account that is designed to cover all your major expenses, such as the mortgage, property taxes, and insurance. The money is then taken out of the escrow account to pay those bills when the time comes. Some people prefer this method, while others want to make the payments themselves.

Points

Mortgage points are a way to lower your interest rate by paying more money up front. This benefits people that plan to stay in the home for a long period of time, since they'll see the benefits of a lower interest rate. However, it is important to understand what the break even point on mortgage points are.

For example, each mortgage point will lower your interest rate by .25%. If the point costs $2,000 and saves you $40 a month on your mortgage, you will need to stay in your home for 50 months to break even on that mortgage point. If you plan on selling the home before that time, it will not make sense to purchase mortgage points.