First-Time Homebuyer Mortgage Terms Glossary

Acquisition Costs

All costs associated with purchasing a property beyond the purchase price. Includes lender fees, title insurance, appraisal, recording fees, attorney fees, and prepaid items like insurance and taxes. Typically expressed as a percentage of the purchase price and disclosed on the Loan Estimate within 3 business days of application.

Affordability

A borrower's capacity to purchase and maintain a home based on income, debts, savings, and the loan terms available. Lenders assess affordability using debt-to-income ratio, credit score, and down payment. Use our affordability calculator to estimate what you may qualify for based on your specific numbers.

• Affordability Calculator

Application (Mortgage)

The formal process of submitting your financial information to a lender for evaluation. Triggers the 3-day window for receiving a Loan Estimate. The standard form is the Uniform Residential Loan Application (URLA), also called the 1003.

• Start application

Buyer's Agent

A real estate agent who represents the buyer's interests in a home purchase transaction. Helps find properties, structure offers, negotiate repairs, and navigate the contract process. Traditionally paid through a commission from the seller's proceeds, though buyer-agent compensation agreements have evolved following the 2024 NAR settlement.

Contingency

A condition written into a purchase contract that must be satisfied for the sale to proceed. Common contingencies include financing (the buyer must secure a loan), inspection (the property must pass inspection), and appraisal (the property must appraise at or above the purchase price).

Earnest Money

A deposit paid by the buyer when making an offer on a home, held in escrow until closing. Demonstrates the buyer is serious. Typically 1 to 3% of the purchase price. Applied to the down payment at closing.

First-Time Homebuyer

Generally defined as a borrower who has not owned a primary residence in the past three years. First-time homebuyer status opens eligibility for specific programs with lower down payment requirements, reduced mortgage insurance, and down payment assistance. FHA, USDA, and many state housing finance agency programs specifically target first-time buyers.

• FHA program

Gift Funds

Money given to a borrower by a family member or qualifying donor to use toward the down payment or closing costs. Most loan programs allow gift funds, but lenders require a signed gift letter confirming the money is not a loan and does not need to be repaid.

Gift Letter

A signed document from the donor confirming that funds given to a homebuyer are a gift, not a loan, with no expectation of repayment. Required by lenders when any portion of a down payment comes from a gift. Must include the donor's name, relationship to the borrower, amount, and a no-repayment statement.

Home Inspection

A visual examination of a property's condition by a licensed inspector, typically conducted after an offer is accepted. Covers the structure, roof, plumbing, electrical, HVAC, and more. Not required by lenders but strongly recommended. FHA and VA loans have separate property condition requirements beyond a standard inspection.

Home Inspection Contingency

A purchase contract clause giving the buyer the right to have the property inspected and to request repairs, renegotiate the price, or withdraw from the contract based on findings. Must be specified in the contract with a deadline. Waiving the inspection contingency is risky and common only in competitive markets.

Minimum Down Payment

The smallest down payment a borrower can make on a specific loan program. VA and USDA: 0%. FHA: 3.5% with 580+ credit. Conventional: 3% with qualifying programs. Jumbo: typically 10 to 20%. A higher down payment reduces the loan amount, may eliminate PMI, and often qualifies the borrower for a lower rate.

Pre-Approval

A formal review by a lender of your income, credit, and assets that results in a letter specifying the loan amount the lender will offer. Stronger than pre-qualification because it is based on verified documentation.

• Get pre-qualified

Pre-Qualification

An informal estimate of how much you might borrow based on self-reported financial information, without verification. Useful for initial budgeting but carries less weight with sellers than a pre-approval letter.

Purchase Contract

Also called a sales contract or purchase agreement. The binding legal document that sets the price, closing date, contingencies, and other terms of a home sale between buyer and seller. The signed contract is required before the lender can issue a Loan Estimate or order an appraisal.

Single-Family Home

A stand-alone residential structure designed for occupancy by one household, with its own lot and direct street access. The most common property type financed by residential mortgages. Includes detached homes and, depending on program rules, certain attached townhomes that are not part of a condo regime.