From fixed rates and closing costs to rate locks and down payments, there is a lot of jargon regarding mortgages. First-time homebuyers need not fret! We’ve got the 411 for you. Below is a list of terms curated specifically for those looking to understand more about mortgages. Wait… what is a mortgage? Before diving in, let’s ensure we’re in the right spot. As defined by the Consumer Financial Protection Bureau, a mortgage is an agreement between you and a lender that allows you to borrow money to purchase or refinance a home and gives the lender the right to take your property if you fail to repay the money you've borrowed. Adjustable-Rate Mortgage (ARMs)This is a loan with an interest rate that changes. ARMs are typically 30-year loans, meaning you’ll repay the borrowed money over 30 years. To avoid crazy rate hikes, ARM loans come with “rate caps,” which limit the amount your interest rate can rise or drop in a single period and over the loan's lifetime.There are many factors to consider when determining whether to obtain an ARM loan. From how much you want to spend up-front and the current state of the interest rate market to whether you’re getting close to retirement or if this is just a starter home. Amortization This is a fancy way of saying, “paying off a debt over time in equal installments.” Part of each payment goes toward the loan principal (see definition below), and part goes toward interest. With mortgage loan amortization, the amount going toward principal starts out small and gradually grows larger each month.Closing CostsClosing costs include the multitude of fees for the services and expenses required to obtain and finalize a mortgage. Those costs may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed recording fees, and credit report charges. A buyer's average closing costs run between 2% and 5% of the loan amount. Down PaymentA down payment on a house is a large sum of money the buyer pays upfront. The amount paid is usually a percentage of the purchase price and can range from as little as 3% to as much as 20% for a property. The required down payment is usually determined by the type of mortgage you choose, your financial situation, and the type of property you’re buying. In terms of your mortgage, a larger down payment will typically mean smaller monthly mortgage payments. EscrowAn escrow is a legal arrangement in which a third-party temporarily holds money or property until a particular condition has been met (such as fulfilling a purchase agreement). In terms of real estate, escrow can protect both the buyer and the seller throughout the home buying process. Throughout the mortgage term, an escrow account will hold funds for taxes and homeowner’s insurance.Fixed-Rate MortgageA fixed-rate mortgage is an alternative to an adjustable-rate mortgage. As the name implies, a fixed rate is a home loan option with a specific interest rate for the entire term of the loan. Essentially, the interest rate on the mortgage will not change over the loan's lifetime, and the borrower's interest and principal payments will remain the same each month. With this type of mortgage, fluctuations in the market will not impact the rate.InterestMortgage interest is the interest charged on loan used to purchase a piece of property. The amount of interest owed is calculated as a percentage of the total amount of the mortgage issued by the lender. Mortgage interest compounds and may be either fixed or variable.Loan PrincipalThis is the amount you borrow and goes down as you begin to pay it back, while interest is the cost of borrowing the money.th.Rate LockA lock-in or rate lock on a mortgage loan means that your interest rate won’t change between the offer and closing, as long as you close within the specified time frame and there are no changes to your application. The downside to a rate lock may be that it’s expensive to extend if a transaction needs more time.A rate lock may also lock you out of a lower interest rate if rates fall after you get your loan offer. When it comes to buying a home, the terminology can leave you spinning. We hope this guide has served as a solid starting point in your homebuying journey. 

Working for yourself has many benefits: Flexible hours, more freedom on projects, and no dealing with bosses or co-workers. However, some things are a little more complicated when you’re freelancing… and one of those things is buying a house. But don’t worry! With just a little bit of prep work, you can realize your dream of owning a home.Why is the Home-Buying Process Different for Freelancers?The majority of the home-buying process is the same for everyone. You’ll complete the same applications, get your credit score verified, and disclose debt and assets. What’s different is the process of proving your income.Mortgage lenders need to verify how much a borrower is earning and a history of earnings. For traditionally employed prospective buyers, lenders can contact their employer for these details. Freelancers need to provide this on their own.What Do Freelancers Need to Prove Income?Typically, lenders want to see at least two years of income history. These are a few examples of documents you might need to provide:Employment verification in the form of letters from clients or a licensed CPA, proof of licenses you hold, and evidence of insurance for your business.Income verification through at least two years of tax returns, bank statements, and profit-and-loss forms.How Can Freelancers Improve Their Chance of Being Accepted?Lenders are going to look closely at your credit score, credit history, and current debts. They will also consider savings or assets, which can be used for a down payment and cover closing costs.You can improve the chances of having your mortgage loan accepted by improving your credit score, keeping your debt-to-income ratio low, keep balances on credit cards low, and start saving for your down payment.Tips for Increasing Your Credit ScoreA high credit score can prove to lenders that you’re able to repay a loan. Check your credit score to make sure there aren’t any errors – and correcting them if there are.Make sure you don’t open any new credit lines, including credit cards, car loans, or anything else.Do not close any credit card or other accounts right now! Even if you have a credit card you haven’t used in years, don’t be tempted to close it out. Doing this can affect your credit utilization ratio, which affects your credit history.Owning a Home Isn’t Just a Dream!Don’t be discouraged by the extended process for freelancers to secure a mortgage. As long as you can gather the documentation you need to verify and document your income, you’ll be ready to start the process. If you’re a few years out from starting the process, now’s the time to boost that credit score, get your debt-to-income ratio low, and start saving. Good luck!