lending term cheat sheet

A Lending Term Cheat Sheet for First Time Home Buyers

Buying a home can be confusing with all the mortgage terms, especially if it’s your first time. ARM here, FHA there, you may be smiling and nodding but have no idea what your lender and realtor are talking about. Take a look at this lending term cheat sheet to help you through the mortgage process.

Lending Term Checklist for First Time Home Buyers


A pre-approval is an evaluation by the lender to determine whether a borrower qualifies for a loan and if so, what the maximum amount is. Getting a pre-approval is important because it helps the buyer know the price range of houses to search for. Additionally, showing up to a realtor with a pre-approval shows the realtor you are serious about buying a home.


You may have heard the lending term “in escrow” but don’t particularly know what that means. The mortgage company establishes an escrow account to pay property taxes and insurance during the term of the mortgage.


FHA (Federal Housing Administration) is a type of loan that is very common for first time home buyers. An FHA loan allows buyers to put down as little as 3.5% down on a house. This type of loan is also known for allowing a lower credit score from the buyer, as low as 580 in comparison to a conventional loan’s 620.

Closing Costs

Closing costs are the costs that a buyer must pay for as they sign the closing documents and get handed the keys to their home. These costs may include but aren’t limited to attorney feed, recording fees, and other costs associated with the mortgage closing.

Debt to Income Ratio

Lenders look at a number of categories to determine if a buyer is able to repay a mortgage loan. In the debt to income ration the lender takes into consideration all the monthly fees a buyers owes and compares it to how much money they bring in each month. The higher the debt to income ratio, the riskier the loan is for the lender.


These points refer to percentage points of the loan amount. Often lenders will allow buyers to “buy down” the interest rate by paying points. Paying a percentage upfront in order to get a lower rate will eventually save the borrowers money if they stay in the home for the duration of the loan.


Amortization is lending term that refers to a schedule on how long the loan is intended to be repaid. If you have a 30 year loan on your home, the amortization schedule will break down the payments by month and will include the amount borrowed, interest rate paid and term.

Down Payment

A down payment is the amount owed before signing for the home. It refers to the percentage of the purchase price mutually agreed upon with the lender and the buyer. 3.5% down refers to 3.5% of the $500,000 home to be paid upfront.


An appraisal is conducted by a professional appraiser who walks a property and gives an estimated value based on inspection and comparable houses in the area that have been sold within the same time period.


You may have heard the term equity as something you want when you buy a home. Home equity is the difference between the value of the home and the mortgage loan. Over time, as the value of the home increases and the amount of the loan decreases, the equity of the home general increases.

You might also like: A Checklist for the First Time Home Buyer


Whether you’re a repeat or first time home buyer, we can help demystify the mortgage and home buying process. Contact Guild Mortgage Tacoma and put the Fornerette Team experts and Guild’s years of mortgage lending experience to work!