A Better guide

to buying
a home
Buying a home is a big deal, and there are a lot of fun things to
look forward to. But between deciding on paint colors or picturing
your new backyard, the slightly less exciting aspect to consider is
how you’re going to finance this purchase.

The truth is, the further ahead you plan for how you’ll buy your
house, the easier it might be. So while you’re debating “eggshell” or
“matte,” let’s also get you ready to pay for it. This is a guide to help
you prepare to buy a home and get the best mortgage possible.

contents
1 | 9–12+ months out: assess and plan

8 | 3–6 months out: understand your options

18 | 1 month out: starting your mortgage journey

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© Better Mortgage Corporation | NMLS #330511

9-12+
assess
and plan
months out:
 What to
consider now
What’s your “why?”

Do you plan on staying for at least a few years?

Can you take on repairs and upkeep?

About how much can you afford?

Do you have emergency savings in place?

Assets: how much can you put towards a down payment?

Income: do you have a consistent earning history?

Debt: what’s your monthly debt-to-income ratio?

How flexible is your buying timeline?

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 Are you
mentally ready?
A good place to start is to simply ask yourself why you want to buy. Looming
rent hike? Growing your family? Moving to a new city? Trying to build equity?
Are you looking for a “starter” home or a place to settle down forever? Can you
commit to staying in the same neighborhood for awhile? Are you ready to take on
homeowner duties like repairs? How you answer these questions might impact
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the decisions you make throughout the homebuying process.

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 Are you
financially ready?
Getting a sense for how much you can afford will probably be one of your first
steps. If you’re a renter, calculating the cost of renting versus buying is also a
good place to start. Our home affordability calculator can help give you a ballpark
for what you can afford and how much your monthly payments would be.
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Being ready is more than just being able to make monthly payments. Having
emergency savings is foundational to your financial health, especially if you
become a homeowner — if you’re unable to afford surprise home repairs, health
care expenses, or other emergencies, you run the risk of having to take on more
debt, or even going into foreclosure.

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 Will a lender think
you’re ready?
When it comes to getting a mortgage, it’s helpful to think like a lender.
Ultimately, when a lender is deciding whether to give you a loan (and what the
terms will be), they want to know: can you pay now, can you pay later, and do
you have proof?

At Better, it’s our goal to find the best possible financing option for you, making
sure your mortgage is affordable for you both now and in the future. Here’s
what we’ll assess when we determine how much you’re able to borrow:

ASSETS
How much can you put towards a down payment? The more you can pay
upfront (given that you still have emergency savings in reserve), the less you’ll
need to borrow and the lower your payments will be. If 20% down seems
unreachable, keep in mind that for people with great credit and a steady
income, a 5% down loan can be a financially sound option.

Remember that in addition to your down payment, you’ll want to make sure you
have enough to cover closing costs and other third-party fees, like homeowners
insurance, title, flood certification, and appraisal fees.

Tip: Keep in mind that closing costs can add thousands of

dollars to your total upfront costs and are typically around
2–5% of the purchase price of the home. You may also want
to budget for moving expenses, repairs, and renovations.
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 Finally, if you’re anticipating getting some assistance with your down payment
from parents or family members, it may be a good time to start having those
conversations so you have a more realistic picture of what you’ll be working with.
Recent monetary gifts will likely require gift letters and documentation of the
transfer of funds from the donor, so getting the funds transferred sooner rather
than later can save you a paper trail headache down the line.

INCOME
A mortgage is committing you to years, if not decades of payments. In order
to assess your ability to make payments in the future, lenders will look to see if
your income has been stable and consistent over the past 2 years and is likely
to continue to be. To determine this, lenders typically need documentation of
your income history from the last 2 years, verified by tax returns and pay stubs.
It’s helpful to remember that lenders are also looking for consistency. So if your
income is variable (such as if you’re self-employed or paid on commission), you
will likely need to submit extra documentation, and be prepared for lenders to
be conservative with their income calculations. Also note that not all income
is created equal. For example, lenders will typically only count a percentage of
rental income, as it’s viewed as being more risky than employer income.

Tip: If you’re considering a job switch in the near future, keep

in mind that lenders are required to ask about gaps in your
employment history or any decline in income year over year.
And if you’re currently in the loan application process, it may be
best not to change jobs if you can avoid it, as that could impact
your ability to get financing even after you’ve been approved.
If a job change during your loan process is inevitable, make
sure to tell your lender as soon as possible so they can ensure
you submit the necessary documentation.

CREDIT
Your credit score helps lenders evaluate your ability to pay back your loans, based
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on your borrowing history. The higher your credit score, the better rates you’ll be
able to get, which can lead to significant savings over the life of your mortgage.
The good news is if you’re still 9-12+ months away from starting your home search,
you have time to improve your credit score and fix any errors on your report.

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 Start by getting a free copy of your credit report and checking it for errors (1 in
5 Americans have one). Errors can takes week or even months to resolve with
credit bureaus, so the sooner you can report them, the better. Next, check your
credit score and start taking steps to improve it, if necessary. Checking your
own score won’t affect your score.

DEBT-TO-INCOME RATIO (DTI)

Lenders are less interested in your total debts than your debt-to-income ratio,
which measures your monthly debt payments (like student loans, auto loans,
and credit card payments) against your gross monthly income. At Better, we
can work with creditworthy borrowers with a DTI as high as 50%. That said,
the lower your DTI, the more financing options will be available to you. We’ve
outlined some ways to improve your DTI here.

How flexible is
your timeline?
Ultimately, you’re the only person who can truly assess whether you’re “ready”
to buy a home. But the more flexibility you have in your timeline, the more time
you’ll have to improve your credit score, reduce your DTI, save up for your down
payment, and build a consistent income history — not to mention search for
your dream home.

Want a second pair of eyes? Schedule a Home Buying Readiness Assessment

Call with one of our non-commissioned Loan Consultants.
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3-6
understand
months out:
your options
 What to do now
Check your credit score again

Recalculate your DTI

Consolidate your down payment funds

Get a sense for how much you can afford

Apply for our basic pre-approval

Learn about your financing options

Practice your mortgage payments

Research neighborhoods you’re interested in

Get recommendations for real estate agents

Try to avoid new credit inquiries and job changes

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 Check in on your
financial picture
At this point you may have transitioned from “thinking about buying a home”
to “shopping for a home in the coming months.” Now is a great time to take
another close look at your finances. Having a clear picture of what you’re
working with will help you determine a more accurate budget for your dream
home. Check your credit score again (it won’t impact your score), and recalculate
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your debt-to-income ratio to see where you stand.

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 Consolidate your
down payment funds
Remember how lenders are all about proof? We’re required to make sure the
money in your accounts is really yours, and we’ll need to see two months worth
of bank statements for any funds you plan on using for your down payment. If
we notice any big transfers or deposits, we’re required to ask for explanations
for the transfers, as well as letters verifying that down payment gifts from
friends and family members are truly gifts, not loans. And you may have
guessed this by now, but we won’t be able to use unsourceable funds (like cash
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under your mattress).

To save yourself headaches later, start consolidating all your down payment
funds into one account now. That way, your two month transaction history
won’t raise red flags when you do start the mortgage process.

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 Get a better sense for how
much house you can afford
Now is a good time to get a more accurate estimate for how much you can afford.
While our affordability calculator can give you a quick sense of your budget
range, our basic pre-approval process will help you get a more precise number.

Apply online for our

3-minute basic pre-approval
As part of our online basic pre-approval process, we’ll run a soft credit
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check (which doesn’t affect your score) so we can give you a more precise
amount for what you can borrow. We’ll also give you your score instantly
(FICORiskScoreClassic04 from Transunion, to be specific), so you know what
we know. Getting our basic pre-approval is free and there’s no obligation to
keep working with us.

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 Learn about your
financing options
There are a few key decisions you’ll need to make when deciding on a
financing path:

• Whether you want a fixed or adjustable-rate mortgage

• If you want to pay points or take credits

• How much you’ll put towards your down payment

FIXED AND ADJUSTABLE-RATE MORTGAGES

With a fixed-rate mortgage, you’ll have the same interest rate for the life of your
loan. No surprises. (Better offers 30, 20, and 15-year fixed-rate loans).

With an adjustable-rate mortgage (ARM), you’ll have a lower rate for an initial
fixed period (Better offers 10/1, 7/1, and 5/1 ARMs). After that initial period is over,
rates will adjust (and typically increase) each year, based on market rate factors.
Note that there is a predetermined cap that establishes the maximum amount
rates can increase each year — so you’ll know the “worst case” scenario going
in. (The typical cap is 2% for the initial adjustment period, 2% for subsequent
periods, and a 5% lifetime adjustment cap over the initial fixed rate).

fixed-rate mortgage adjustable-rate mortgage

OPTIONS 30-year, 20-year, 15-year 10/1, 7/1, 5/1

Lower rate for the initial period,

RATE Same rate for the length of the term
adjusts yearly after

You plan on keeping your home You’re confident you’ll sell or refinance
BEST IF long term before the initial term ends

MINIMUM DOWN
5% 5%
PAYMENT*
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*For qualified applicants. In certain cases, Better may be able to offer a 3% down payment.
Schedule a call with one of our Loan Consultants to learn more.

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 If you’re planning on staying in your home long term, a fixed-rate loan is likely
the way to go since you can lock in the same rate for the entire length of the
mortgage. However, if you’re confident that you’ll be selling within 5-10 years,
an ARM could save you thousands. We have some resources explaining how
ARMs work and whether they may be a good option for your situation.

POINTS AND CREDITS

• “Taking credits” means accepting a higher interest rate (and therefore higher
monthly payments) in exchange for cash to offset your closing costs. If you take
enough credits to offset all closing costs, this results in a “no-cost mortgage.”

• The flip side of taking credits is “paying points,” in which you pay some of
your mortgage balance upfront in exchange for a lower interest rate (and
therefore lower monthly payments).

Whether taking credits or paying points (or neither) is the best option largely
depends on how long you plan on keeping your mortgage before refinancing
or selling. You can learn more about points and credits and run your own
calculations with our interactive tool.
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Historical data shows that the majority of borrowers have refinanced, sold, or
otherwise closed their mortgage within six years, making taking credits the
most cost-effective option for many borrowers.1

Agarwal, Ben-David, and Yao (2016), Journal of Financial Economics.

1

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2548316

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 DOWN PAYMENT SIZE
You may have heard that 20% is the magic number for a down payment. It’s true
that the greater your down payment, the less you’ll need to borrow, which in turn
can mean lower monthly payments and more favorable rates. Putting down 20%
or more also means you won’t need to pay private mortgage insurance (PMI)
which lenders typically require if your down payment is less than 20%. That said,
if 20% down seems unreachable, keep in mind that for people with great credit
and a steady income, a 5% down loan can be a financially sound option.

Bear in mind that in addition to your down payment, there will be other third-
party fees associated with closing, including your appraisal, title, and flood
certification. Some lenders also charge origination or servicing fees (Better
does not). You’ll also want to make sure you have funds for moving, and
possibly renovations and repairs.

Practice your
mortgage payment
Running the numbers is one thing, having a mortgage bill come in every month
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is another. Since you’ve got some time, consider using it to “practice” your
mortgage payments and get a true sense of how buying a home will affect your
monthly budget. If your estimated mortgage payment is more than your current
rent, start putting aside the extra amount every month to simulate making
mortgage payments. Does your budget still feel comfortable? If not, you may
want to re-think how much you can really afford. Bonus: you can put the extra
money saved during this exercise toward your down payment.

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 Be Strategic

You’ll probably want to look up property taxes in the areas that

you’re interested in, as tax rates can be quite high in certain
areas, adding significantly to your overall monthly payment.

Also keep in mind that there are certain neighborhoods and

properties across the country that are eligible for affordable
lending programs, like Community Reinvestment Act (CRA)
and HomeReady.

Schedule a call with one of our Loan Consultants to learn more.

Start researching
neighborhoods
This is the fun part — it’s time to start thinking about where you’ll be putting
down roots. Take a look at home prices in the areas you’re interested in.
Depending on your budget, you may need to expand your search. Visit the
neighborhoods on your radar. Talk to residents to get a feel for the community,
and research school districts if you have kids (or plan on having them).

Now is also a good time to start getting recommendations for real estate
agents. They’re an important part of the homebuying process, so you want to
make sure you’re partnering with someone you can trust and like working with.
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 Try to avoid new credit
inquiries and job changes
The trick to minimizing paperwork in the mortgage process is to give lenders
less to investigate when it comes to your finances. Just like it’s a good idea
to start consolidating your down payment funds early (so you have a clean
transaction history when lenders pull your two months of bank statements), it’s
also a good idea to avoid new credit inquiries (which impact your credit score).
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So if possible, hold off on applying for things like car loans or credit cards until
after your mortgage has been funded. Same goes for changing jobs, as lenders
will need to look into any employment gaps or dips in income. Again, if a job
switch is unavoidable, inform your lender as soon as possible so they can help
you with any additional paperwork.

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journey
mortgage
1 month out:
starting your
 What to do now
Know your numbers

Gather necessary documents

Get Better’s Verified Pre-Approval Letter

Understand fees and costs

Learn how to lender shop

Familiarize yourself with the mortgage process

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 Know your numbers
By now you’ve done the work to improve your credit score, decrease your debt-
to-income ratio, and save for your down payment. You may have even worked
on establishing emergency savings and practiced your mortgage payments.
Now is a great time to review everything so that you’re confident about your
financial picture going into the mortgage process.

As we’ve mentioned before, the time leading up to applying for your mortgage
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is not the best time for new credit inquiries, major purchases or transfers, or job
changes. If possible, wait until your mortgage is funded and the keys to your
new home are in your hand before you make any financial moves. Your lender is
required to re-verify your finances right before finalizing your mortgage, so let
them know of any changes immediately to help avoid any last-minute surprises.

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 Gather documents
Remember, in order to provide you with a loan, lenders will be looking for proof
that you’ll be able pay both now and later ­— and they can’t just take your word
for it. Start gathering your financial documents now, including:

• 2 years of personal tax returns

• 2 years of business tax returns (if you own more than 25% of the business)

• 2 years of W-2s or 1099s

• 2 months of bank statements

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• Proof of any alimony or child support payments

If you’re applying with Better, you’ll be able to link your bank accounts and
upload your documents digitally. As our underwriting team reviews your initial
application, we’ll let you know what follow-up documents we need based on
your specific financial situation.

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 Get your Verified
Pre-Approval Letter
from Better
Once you have your documents gathered and you’re ready to start shopping
for a home, you’ll be able to get our Verified Pre-Approval Letter. It’s common
for real estate agents and sellers to request a pre-approval letter from potential
home buyers. They’re looking for certainty — they want to be certain that the
number you say you can afford is what you’ll actually get approved for when
you apply for a loan. That’s why a cash buyer is so attractive to them — they
know the money is in the bank.

That’s why our Verified Pre-Approval Letter is so helpful. It involves both you and
us taking a bit of extra effort up front to actually verify your financial details so
that we can tell you exactly how much you’re qualified to borrow. Essentially, it
can give you the certainty and confidence of a cash buyer.

To get you verified, we’ll need documents like your recent pay stubs, tax
returns, and W-2 forms. We’ll also need to perform a credit check. Once you’ve
applied, we can provide a 100% digital, underwriter-reviewed letter for qualified
borrowers. It’s a completely free service, and there are no strings attached.
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The best part? Once your offer is accepted and you’re ready to apply for a loan,
our underwriters have already done most of the work verifying your financial
details. That means we can usually close your loan weeks faster than the
industry average2, often within 14 days from locking your rate.

https://www.housingwire.com/articles/36305-the-trid-ripples-time-to-close-mortgage-loans-
2

continues-to-rise

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 Understand fees and costs
YOUR MONTHLY MORTGAGE PAYMENT
Your monthly mortgage payment, sometimes referred to as “PITI,” consists of
four components: principal, interest, taxes, and insurance.

Principal
This is money going toward the actual balance of your loan. As time goes by,
you’ll pay more toward your principal and less toward interest.

Interest
This is money going toward paying interest on your loan. As time goes by, you’ll
pay less interest and more toward your principal.

Taxes
Property or real estate taxes are determined locally, and vary from area to area.
Tax rates can be quite high in certain areas, so it’s a good idea to research rates
in advance as they can add significantly to your monthly payment.

Insurance
Insurance can include homeowners insurance (which you’ll need to purchase
after your offer has been accepted and before your loan is closed) as well as
private mortgage insurance (PMI), which is typically required if you put less
than 20% down.
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 HOW DOES AN ESCROW ACCOUNT WORK FOR MORTGAGE PAYMENTS?
Taxes and insurance aren’t always due on a monthly basis, but you can still
choose to pay them monthly by setting up an escrow account (for some loans,
an escrow account will be required). If you have an escrow account, you’ll
pay one-twelfth of your yearly insurance and taxes each month, and your
payments will automatically be made from that account when they are due.

THE OTHER ESCROW ACCOUNT

A different escrow account is also used during closing. It is an account
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managed by a third party (sometimes called a “closing agent” or “escrow

agent”) where the funds you are using to pay for your home are kept safe until
the loan is finalized and the deed to your home is in your hands.

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 Closing costs and
how to lender shop
When it comes to shopping for the best mortgage, rates and the costs associated
with them (i.e. “points”) aren’t the only factors to consider. This post offers a more
detailed overview about what goes into the price of your mortgage and how to
compare lender offers. Let’s look at the additional closing costs you should be
prepared to pay. Some fees vary between lenders, while others will be the same
no matter who you work with. To compare offers, you can ask the lenders you
are talking to for a Loan Estimate, which is a standard document created by the
Consumer Finance Protection Bureau. Here’s a breakdown:

Common fees
Estimated fees Lender fees Third-party fees
These fees are related to Better doesn’t charge Lenders choose the third-party
your specific property and lender fees, but many providers, so pricing may vary by
area. Lenders may estimate other lenders do. Here’s lender (excluding title company,
them differently, but they’ll what they may be which you can shop for):
end up being the same no called: • Appraisal: $500 (at closing)
matter which lender you • Origination fee • Credit Report:
choose. $25 per borrower
• Application fee
• Recording fees • Flood Certification: $14
• Servicing fee
• Transfer taxes • Title-related fees*
• Underwriting fee
• Other taxes and • Homeowners’ association
government fees certification (HOA): $325
• Prepaids (taxes and (if applicable, Better will
insurance) cover these fees for you)
• Initial escrow deposit

At Better, we’ve worked to standardize third-party fees and pass the savings on to you.
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If your appraisal or HOA fees end up being less than we initially charged, we’ll refund
you the difference at closing. If they’re more, we’ll cover the difference ourselves.

*Better has preferred title companies who have competitive pricing and can
typically deliver on our faster turnaround times. However, if you are able to find
a cheaper provider, we’re happy to use them.

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 The Better
Price Guarantee
Because we’ve killed commissions, developed relationships with a variety of
reputable investors, and streamlined clunky processes, we can pass the savings
to you. We’re so confident we can get you the best price that we’ve created The
Better Price Guarantee: we’ll beat a competitor’s offer by $1000 and if we can’t,
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we’ll pay you $1000 to fund with the lender who had the better offer.*

*Terms and conditions apply. See better.com/better-price-guarantee.

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 Familiarize yourself with
the mortgage process
1 Lock your rate
Once you have the purchase contract for your new home and you’re ready to
lock your rate, we’ll get started by asking for your $500 appraisal fee (and $325
HOA fee, if applicable).

If either fee turns out to cost less than what we’ve asked for, we’ll refund you
the difference. If for some reason your loan is denied, or the seller backs out,
we will refund you in full.

2 Submit documents
Next, we’ll have you upload your financial documents. We’ll also need you to
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provide a home insurance quote. The great news is if you’ve already gotten a
Verified Pre-Approval Letter with us, we already have most of the information
we need.

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 3 Follow-ups and property-related tasks
You’ll be assigned a Loan Ranger, who will work with you to answer questions
and make sure we have all the documents we need. You can also log in at
any time to see what information we still need from you. In the meantime,
we’ll start working on property-related tasks like your title, appraisal, and HOA
questionnaire (if applicable).

4 Underwriting your loan

Once we have what we need from you, our underwriting team works to review
everything, typically in 3 days or less. During this time, your Loan Ranger may
follow up with you about any additional information needed. They’ll also be
working to make sure all property-related tasks are completed. Before finalizing
the underwriting process, we’ll ask you to pay for homeowners insurance and
confirm with us.

5 Final approval
Once all the final documentation is in, we perform some final checks to make
sure absolutely everything is in order.

6 Closing and funding

Once your loan is finalized, we’ll send over the closing disclosures for you to
review (which includes the final third-party costs, down payment, and prepaid
costs). We’ll work with you to schedule the closing and get all the necessary
documents signed.
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 congrats!
if you’ve made
it this far, you:
Know your numbers

Understand potential financing options

Have gathered your documents

Are ready to get your Verified Pre-Approval Letter

Can be a savvy lender shopper

Have a sense of the mortgage journey ahead

Better is here to help you every step of the way. Get started by
scheduling a call with one of our non-commissioned Loan Consultants.
© Better Mortgage Corporation | NMLS #330511

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Better Mortgage is an Equal Housing Lender. As prohibited by federal law, Better Mortgage Corporation
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Opportunity, Washington, DC, 20580.