Real Estate Terms for First-Time Homebuyers

The terms first-time buyers meet from budget to keys - preapproval, DTI, down payment, earnest money, contingencies and cash to close - in learning order.

Buying your first home means learning a new vocabulary at the same time as making the largest purchase of your life. The terms below are the ones that decide how much you can borrow, how much cash you need and which protections you keep after your offer is accepted.

Start with the journey: it follows a typical purchase from budgeting to the keys, with the decision you make at each step and the terms that matter there.

Start here

Pre-Approval
A pre-approval is a lender's conditional statement that it is willing to lend a specific amount, based on a review of your credit, income, assets and documents. It is stronger than a pre-qualification and often expected with an offer, but it is not a loan commitment.
Debt-to-Income Ratio
Debt-to-income ratio (DTI) is the share of your gross monthly income that goes to debt payments, including the proposed mortgage payment. It is used when lenders decide how much you can borrow, and matters because a high DTI can limit or block approval even with good credit and steady income.
Down Payment
A down payment is the portion of a home's purchase price a buyer pays upfront in cash, with the remainder financed through a mortgage.
Earnest Money
Earnest money is a good-faith deposit a buyer pays after an offer is accepted, held by a neutral third party such as a title or escrow company until closing. It is credited toward the buyer's costs at closing, and matters because the buyer can lose it by backing out for a reason the contract does not allow.
Contingency
A contingency is a condition in a purchase contract that must be satisfied for the sale to proceed — if it isn't met, the buyer can typically cancel the contract and recover their earnest money.
Cash to Close
Cash to close is the total amount a buyer must bring to closing: the down payment plus closing costs and prepaid items, minus any earnest money already deposited and any seller or lender credits. It appears on the Closing Disclosure, and matters because it is the cash you must actually have ready.

First-time home buying, step by step

Most purchases follow this order. Timing varies, but the decisions do not.

  1. STEP 1

    Set a budget you are comfortable with

    Work out a monthly housing payment that fits your life, including taxes, insurance and any HOA fee, before a lender tells you the maximum.

    Your decision: What total monthly payment can you sustain while still saving?

    Mortgage calculator →

  2. STEP 2

    Get preapproved

    A lender reviews your credit, income and assets and states how much it is willing to lend, subject to conditions.

    Your decision: Which lenders will you compare, and which loan type fits your down payment?

    Mortgage buying power calculator →

  3. STEP 3

    Make an offer

    Your offer sets the price, deposit, contingencies and closing date.

    Your decision: How much deposit, and which contingencies will you keep?

    Offer price calculator →

  4. STEP 4

    Inspect the home

    An inspector examines the structure and systems during your inspection contingency window.

    Your decision: Ask for repairs, a credit, a lower price - or walk away?

  5. STEP 5

    Appraisal and underwriting

    The lender orders an appraisal and verifies everything in your file.

    Your decision: If the appraisal is low, cover the gap, renegotiate or cancel?

    Mortgage rate lock calculator →

  6. STEP 6

    Review the Closing Disclosure

    At least three business days before closing you receive the final loan terms and costs.

    Your decision: Does everything match your Loan Estimate, and is your cash ready?

    Cash-to-close calculator →

  7. STEP 7

    Final walkthrough and closing

    You confirm the home's condition, sign the documents and receive the keys.

    Your decision: Is the home in the agreed condition, with agreed repairs done?

All 29 terms

  • AppraisalIntermediate

    An appraisal is a licensed professional's independent opinion of a property's market value, ordered by a lender to confirm the home is worth at least the loan amount before approving financing.

  • Appraisal GapIntermediate

    An appraisal gap is the amount by which a home's contract price exceeds its appraised value. It arises when the lender's appraisal comes in low, and matters because the lender lends on the lower value, so the buyer must cover the difference in cash, renegotiate, or cancel if a contingency allows it.

  • APR (annual percentage rate) is the yearly cost of a loan including the interest rate and certain lender charges, such as discount points and origination fees. It is used when comparing loan offers of the same type and term, and matters because two loans with the same rate can cost very different amounts.

  • A buyer's agent is a real estate agent who represents the buyer's interests in a transaction — helping find properties, negotiate price, and navigate the closing process.

  • Cash to close is the total amount a buyer must bring to closing: the down payment plus closing costs and prepaid items, minus any earnest money already deposited and any seller or lender credits. It appears on the Closing Disclosure, and matters because it is the cash you must actually have ready.

  • Closing costs are the fees and charges, beyond the down payment, needed to complete a real estate purchase or loan, such as lender fees, the appraisal, title insurance, settlement and recording fees, and transfer taxes. They are paid at closing and matter because they add substantial cash on top of the down payment.

  • Closing DisclosureIntermediate

    The Closing Disclosure is a standardized form lenders must give you at least three business days before closing. It lists the final loan terms, projected payments, closing costs and cash to close, so you can compare it with your Loan Estimate and question any change before you sign.

  • A contingency is a condition in a purchase contract that must be satisfied for the sale to proceed — if it isn't met, the buyer can typically cancel the contract and recover their earnest money.

  • Conventional LoanIntermediate

    A conventional loan is a mortgage not insured or guaranteed by a government agency, typically requiring a higher credit score than government-backed loans but avoiding certain government fees.

  • A credit score is a three-digit number (typically 300-850) summarizing a borrower's credit history, which lenders use alongside DTI and LTV to set mortgage eligibility and interest rate.

  • Debt-to-income ratio (DTI) is the share of your gross monthly income that goes to debt payments, including the proposed mortgage payment. It is used when lenders decide how much you can borrow, and matters because a high DTI can limit or block approval even with good credit and steady income.

  • A down payment is the portion of a home's purchase price a buyer pays upfront in cash, with the remainder financed through a mortgage.

  • Earnest money is a good-faith deposit a buyer pays after an offer is accepted, held by a neutral third party such as a title or escrow company until closing. It is credited toward the buyer's costs at closing, and matters because the buyer can lose it by backing out for a reason the contract does not allow.

  • EscrowBasic

    Escrow is an arrangement in which a neutral third party holds money or documents on behalf of others. It is used during a purchase to hold earnest money until closing, and afterward in an escrow account that pays property taxes and insurance, which matters because those bills then become part of the monthly mortgage payment.

  • A mortgage escrow (or impound) account is a fund a servicer maintains on a borrower's behalf, collecting a portion of property taxes and homeowners insurance with each monthly payment and paying those bills when due.

  • FHA LoanIntermediate

    An FHA loan is a mortgage insured by the Federal Housing Administration, allowing lower down payments and credit scores than most conventional loans in exchange for mandatory mortgage insurance.

  • The final walk-through is a buyer's last inspection of a property, usually within 24 hours of closing, to confirm its condition hasn't changed and any agreed-upon repairs were completed.

  • Gift LetterIntermediate

    A gift letter is a signed statement from a family member or approved donor confirming that money given toward a down payment is a gift, not a loan that must be repaid — required by most lenders before they'll count gifted funds toward a down payment.

  • A home inspection is a professional evaluation of a property's condition - structure, roof, plumbing, electrical, heating and other major components - typically done after an offer is accepted and before closing. The buyer hires the inspector, and the findings drive repair requests, credits or cancellation under an inspection contingency.

  • An inspection contingency lets a buyer back out of a purchase, or negotiate repairs or a price reduction, if a home inspection reveals significant issues.

  • The interest rate is the yearly percentage a lender charges on the loan principal, before any fees. It is used to calculate the monthly principal and interest payment, and matters because even a small difference in rate changes the payment and the total interest paid over the life of the loan.

  • Loan EstimateIntermediate

    The Loan Estimate is a standardized form a lender must give you within three business days of a mortgage application. It shows the estimated interest rate, monthly payment, closing costs and cash to close in the same format at every lender, which makes competing offers easy to compare.

  • Loan-to-value (LTV) is the loan amount divided by the property's value - for a purchase, usually the lower of the price and the appraisal - shown as a percentage. It is used when lenders price and approve a mortgage, and matters because it decides mortgage insurance, rate tiers and how much you can borrow.

  • PITIIntermediate

    PITI stands for principal, interest, taxes and insurance - the four parts of a typical monthly mortgage payment. Lenders use the full PITI amount, plus any mortgage insurance and HOA dues, to judge affordability, so property taxes and insurance can change how much home a buyer qualifies for.

  • A pre-approval is a lender's conditional statement that it is willing to lend a specific amount, based on a review of your credit, income, assets and documents. It is stronger than a pre-qualification and often expected with an offer, but it is not a loan commitment.

  • A pre-qualification is an informal, non-binding estimate of how much a buyer might be able to borrow, usually based on self-reported income, debts and assets rather than verified documents. It is useful for early budgeting, but sellers give it little weight and lenders use the term inconsistently.

  • Prepaids are amounts paid at closing for expenses that belong to the period after you own the home - typically mortgage interest from the closing date to the end of the month, the first year of homeowners insurance, and initial deposits that fund your escrow account.

  • Private mortgage insurance (PMI) is insurance most conventional lenders require when a borrower puts down less than 20%; it protects the lender, not the borrower, if the loan defaults. The borrower pays it, usually monthly, and it matters because it raises the payment until it is cancelled or ends.

  • Rate LockIntermediate

    A rate lock is a lender's commitment to hold a specific interest rate for a set period while a loan is processed, protecting the borrower from rate increases before closing.

Common mistakes

  • Shopping by the maximum preapproval amount instead of a payment you chose yourself.
  • Budgeting the down payment but not closing costs, prepaids and moving reserves.
  • Opening new credit or changing jobs between preapproval and closing.
  • Waiving the inspection or appraisal contingency without the cash to cover a problem.
  • Missing a contingency deadline, which can put the deposit at risk.

Practical examples

The preapproval is not the budget

A lender may approve a payment near the top of its debt-to-income limits. If that leaves nothing for savings or repairs, choose a lower price range: the approval is a ceiling, not a recommendation.

Cash needed is more than the down payment

With 5% down on a $350,000 home, the down payment is $17,500, but closing costs and prepaid items add more. Your Loan Estimate shows the full "cash to close", less your deposit.

Comparisons and common questions

Calculators and guides

Frequently asked questions

How much do I need to buy my first home?

Enough for the down payment, closing costs, prepaid items and reserves. Some loans allow small down payments, but closing costs still add several thousand dollars or more.

What should first-time buyers learn first?

Start with preapproval, debt-to-income ratio, down payment, earnest money, contingencies and cash to close. Those decide what you can buy and what protects you.

How long does buying a home take?

Often one to two months from accepted offer to closing, plus however long you spend searching. Loan type, inspections and appraisal timing all affect it.

Explore more of the glossary

Definitions are provided for general educational purposes and are not financial, legal, tax, or real estate advice. Rules vary by transaction and location - verify important decisions with qualified professionals.