Reference
Plain-English definitions for every term you will encounter — from your first pre-approval conversation to the day you close.
An early, informal estimate of how much you may be able to borrow based on self-reported income, assets, and debt. Pre-qualification does not require a credit check and carries less weight than a pre-approval. It is a useful starting point but should not be confused with an official loan commitment.
Get a free rate quoteA formal evaluation by a lender that reviews your credit, income, and assets to determine how much you qualify to borrow. A pre-approval letter shows sellers you are a serious buyer and gives you a realistic price range before you start house hunting.
Start your applicationYour total monthly debt payments divided by your gross monthly income, expressed as a percentage. Lenders use DTI to assess your ability to manage new loan payments on top of existing obligations. Most conventional loans prefer a DTI below 45%, though some programs allow higher ratios with compensating factors.
Try our mortgage calculatorsThe ratio of your loan amount to the appraised value of the property, expressed as a percentage. A $320,000 loan on a $400,000 home is an 80% LTV. A lower LTV typically means better rates and fewer requirements. LTV above 80% on a conventional loan usually triggers private mortgage insurance.
A three-digit number ranging from 300 to 850 that summarizes your credit history. Lenders use your score to evaluate risk and determine loan eligibility and interest rates. Most conventional loans require a minimum score of 620, while FHA loans may allow scores as low as 580.
See FHA loan optionsThe financial records lenders require to verify your earnings. For W-2 employees this typically includes two years of tax returns, recent pay stubs, and W-2 forms. Self-employed borrowers may need two years of business and personal tax returns, profit and loss statements, and bank statements.
Self-employed borrower optionsFinancial resources you own that can be used for a down payment, closing costs, or reserves. Assets include checking and savings accounts, retirement accounts, and investment accounts. Lenders verify assets to ensure you have sufficient funds to close and demonstrate financial stability after closing.
Funds remaining in your accounts after paying the down payment and closing costs. Lenders may require one to six months of mortgage payments held in reserve as a safety cushion. Reserve requirements vary by loan type and lender guidelines.