There are three major credit bureaus: Trans Union, Experian, and Equifax. Each one creates a credit report based on info from public records, lenders, and collection agencies. So this means they record accounts opened and closed, payment history, credit limits, etc. These credit reports help mortgage lenders determine your creditworthiness. These reports are also used to determine credit scores.

The amount of credit a borrower actually using.

Example:

• You have a credit card limit of $1,000.

• You’ve spent $500 and have not paid it back yet.

Your credit utilization is 50%.

Calculate this by adding up all of your credit balances and adding up all of your credit limits. Then divide the total balance by the total limit and multiply by 100 for the credit utilization percentage.

DTI is the percentage of your gross monthly income that goes toward your monthly debt payments.

Example:

• You earn $6,000/month before taxes.

• You have $1,800 in monthly debt payments.

Your DTI is 30%

Calculate this by adding up all of your monthly debt payments and adding up all of your monthly income. Then divide the total debt amount by the total income amount and multiply by 100 for the debt-to-income percentage.

$1,800 ÷ $6,000 × 100 = 30% DTI

For a mortgage application, the proposed new monthly housing payment is generally included in the total debt calculation. This means the mortgage amount, HOA fees, property taxes, homeowner’s insurance, and mortgage insurance.

The amount of money a homebuyer pays at the closing toward the sales price of a home. The rest of the sales price is paid by the lender.

Example:

• You agreed to pay a sales price of $350,000 for a home.

• Your mortgage requires minimum 3.5% down payment.

• Your down payment owed is $12,250.

This is a letter written by the person who is gifting funds to a homebuyer for a home purchase. This may be requested by the lender financing the purchase.

A lender's purpose is to verify that the gifted money is not a loan but, indeed, a gift the homebuyer doesn't have to pay back.

The lender may also require the letter to explain where the money came from because all funds for a home purchase must come from a legitimate source.

A Loan Estimate (LE) is a standardized form a mortgage lender provides after you apply for a mortgage. It shows important details about the proposed loan, including the interest rate, estimated monthly payment, loan amount, closing costs, and estimated cash needed to close.

The Loan Estimate makes it easier to understand the cost of a mortgage and compare loan offers from different lenders.

Good To Know: A Loan Estimate is not a final approval or a guarantee that you’ll receive the loan. Some of the costs and terms will typically change as the loan process continues.

Also Good to know: The Loan Estimate is a standardized federal disclosure created by the Consumer Financial Protection Bureau (CFPB). Because lenders use the same standardized form, it should make comparing loan offers easier for you.

This is the amount of savings a homebuyer has leftover after paying down payment + closing costs.

Lenders will sometimes require a certain amount of reserves to make sure the buyer can still afford the mortgage if their income is lost or reduced.

Assets like investment accounts will often count toward a reserves requirement.