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 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">What is an escrow account?</p>

<p class="learnfont">The types of escrow accounts in real estate and when they apply
</p>

  <p class="learnfont">How escrow accounts can protect home buyers, sellers, and owners throughout the real estate and mortgage process</p>

  <p class="learnfont">Important rules and regulations regarding escrow accounts</p>

  </div>
  <br><br>

If you’re in the process of buying or selling a house, you’ve probably heard the term “escrow account” pop up a few times. But what is an escrow account, and why do you need one?

## What is an escrow account?
The word escrow has French origins (ooh la la) and refers to putting a sales agreement into the trust of a neutral third party until the transaction is completed. In the world of home buying, escrow accounts are still commonly established to protect the financial interests of buyers, sellers, and any other parties involved in a purchase sale or refinance. In many cases, escrow also comes into play after [a mortgage is finalized](https://better.com/content/mortgage-maturity-date).
Here’s a quick breakdown on what you should know about the escrow process (often simply referred to as “escrow”) if you’re buying or refinancing a home:

## Types of escrow accounts and how do they work
When it comes to real estate, there are two main types of escrow accounts: one is used to safely hold money during home purchase and refinance transactions, and the other is used throughout the course of a mortgage to manage payments for things like [property taxes](https://better.com/content/how-to-calculate-property-tax-on-a-house), homeowner’s insurance, and mortgage insurance premiums.

### **Purchase escrow accounts**
![How a purchase escrow account works](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F834142d6f2bd4a01aa3abd6a102fa23a)

You’ll typically first hear about an escrow account after you [make an offer](https://better.com/content/how-to-make-an-offer-on-a-home/) on a home and present an [earnest money deposit](https://better.com/content/earnest-money/). The purpose of an earnest deposit is to assure the seller that you’re serious about buying their home, so they can feel confident taking it off the market. However, before any money officially changes hands, certain conditions must be met. That’s where the escrow account and escrow agreement comes into play.

To protect all parties involved in the transaction, money will be deposited into an escrow account for safekeeping. This account is created and managed by a neutral third party, known as the escrow agent. Depending on where the home is located, the escrow agent can be a participating broker, a [title company](https://better.com/content/title-services/), an escrow company, or a real estate attorney.

Beyond the earnest money deposit, escrow accounts may also hold other mortgage-related funds, such as:

— Real estate fees or commissions to agents
— Loan fees to the mortgage lender
— The down payment for the home
— Third-party payments for things like inspections and appraisals
— Seller’s profit from the transaction
— Property tax assessments
— Lienholder payoffs

Not only does this ensure all parties are properly compensated at closing, it also protects buyers and sellers from potential loss which is a good idea for big transactions such as a home purchase. Another key benefit of escrow accounts is that they protect your money until all [agreed-upon conditions](https://better.com/content/what-is-a-mortgage-contingency-and-why-is-it-important/) are fulfilled by both parties; these can range from property inspections to appraisals to repairs. Purchase transactions can fall “out of escrow” if either the buyer or the seller fails to uphold their end of the bargain. Since escrow accounts are maintained by neutral third parties, it’s easier to ensure that large lump sums (such as down payments) will be returned to you without issue. Note: earnest money can sometimes be the exception to this rule, so check the terms of your deposit before putting anything in escrow.

### **Refinance escrow accounts**
When you refinance your mortgage, you’ll use an escrow account to deposit money for things like appraisal fees and attorney fees. In the case of a cash-out refinance, loan proceeds (aka, the money you make from refinancing) will also be held here. If your old loan had an escrow account, it will be closed by your new escrow agent and any remaining funds in there will be returned to you. Once you finalize the terms of your new loan agreement, money will be distributed to the appropriate parties at closing. The distributions may include broker fees or commissions; appraisal, pest and inspection fees; or any cash out to the borrower.

### **Mortgage escrow accounts**
![How a mortgage escrow account works](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2Faf50347c0e37447588eedc2fb10f4ee0)

Your servicer may require you to keep an escrow account after closing. Unlike a bank account that's in your name, an escrow account is opened and managed entirely by your mortgage servicer. All you need to do is make your monthly mortgage payments, and a portion will automatically deposit into your escrow account.

The amount that goes into escrow each month depends on the total supplemental costs associated with owning your home, such as your property taxes, homeowner’s insurance, and, if applicable, [private mortgage insurance](https://better.com/content/what-is-pmi-or-private-mortgage-insurance/) (PMI). Rather than paying these separate costs as they arise, your mortgage servicer can disburse payment on your behalf from your escrow account.

Escrow accounts are useful because they guarantee that you’ll allocate money each month to cover tax and insurance costs throughout the year. They also make it possible for you to spread these large expenses out over time—rather than in inconvenient lump sums. For instance, instead of paying a large property tax bill 4 times per year, it will be incorporated into your mortgage payments and divided over the course of 12 months. This way, you can set it and forget it!

## How does an escrow account work?

Before you close on your mortgage, you will receive your [Closing Disclosure](https://better.com/content/a-guide-to-understanding-your-closing-disclosure/), which will detail the full cost of your home loan—including the terms, projected monthly payments, fees, and [cash to close](https://better.com/content/what-is-included-in-closing-costs/). As part of your projected payments, you’ll see your monthly escrow charges for taxes, insurance, and other costs required.

In Section G of this document, you will also find your initial escrow payments. Your lender will collect this amount as part of your closing costs and use it to establish your escrow account. It’s usually enough to cover the first few months of payments. but your exact initial escrow costs may vary depending on the time of month you close and when your first property tax and insurance bills are due.

Each time you make a mortgage payment, a portion earmarked for taxes and insurance will be funneled into the escrow account for your upcoming bills. These costs will be a separate line item on your mortgage statements. When your property taxes or insurance payments come due, the loan servicer will use that cash reserve to pay those bills on your behalf.

## Is escrow required for my mortgage?

An escrow account is required when [closing on a home purchase](https://better.com/faq/loan-process/what-does-closing-on-a-house-mean) or refinance to protect the buyer, seller, and all other third parties during the transaction. However, a mortgage escrow account [may be optional](https://better.com/faq/loan-process/do-i-need-to-have-an-escrow-account)—it depends on your loan-to-value ratio (LTV) and the type of loan you obtain. For example, FHA loans require a mortgage escrow account for the life of the loan, but the rules for conventional loans are different.

Mortgage escrow accounts are also usually mandatory for homebuyers with [LTVs](https://better.com/content/3-most-important-numbers-mortgage-application/) greater than 80%. If you put less than 20% down on your home, then this will likely apply to you. However, when your ratio falls below that 80% LTV threshold (either because you paid down your mortgage, your [property value](https://better.com/content/factors-that-impact-home-property-value/) increased, or both) keeping your escrow account becomes optional. At that time, you could contact your lender or loan servicer to request the escrow account be eliminated.

## Should you escrow taxes and insurance?

Some homeowners prefer to keep an escrow account for the convenience it offers—it doesn’t get much easier than automatic payments handled by other people. If you’d rather not worry about having to pay extra bills, or if you’re unsure whether you have the financial discipline to set aside money to pay these larger expenses when they come due, then it might make sense to let your mortgage servicer continue making the payments for you.

If your loan permits it and you choose to [make insurance and property tax payments on your own](https://better.com/faq/homeowners-insurance/do-i-have-to-pay-homeowners-insurance-through-escrow), you may have to pay a fee (around .25% of your loan amount) to waive escrow at closing. Remember, escrow gives your lender peace of mind that your home is always insured and your property tax payments stay up-to-date. The waiver fee offsets the additional risk your lender takes on when they don’t have visibility on those payments.

## Escrow account rules and requirements you need to know

The Truth in Lending Act and the Real Estate Settlement Procedures Act guide many of the [regulations around escrow accounts](https://www.consumerfinance.gov/rules-policy/regulations/1024/17/), specifically those that are used to hold insurance and tax payments for homeowners. These rules give transparency into the management of escrow accounts and protect homeowners from being charged excessively.

### Escrow cushion

Some loan servicers may require you to maintain an [escrow cushion](https://www.consumerfinance.gov/rules-policy/regulations/1024/17/#c-2). This means they’ll ask you to keep extra money in your account to cover unanticipated payment fluctuations such as tax spikes or insurance premium increases that can arise throughout the year. However, the cushion can’t exceed more than one-sixth of the total amount paid out of the account each year (roughly equivalent to 2 months of payments.)

### Annual escrow statements and adjustments

Your loan servicer is required to send you an [annual escrow statement](https://www.consumerfinance.gov/rules-policy/regulations/1024/17/#b42b7a6c824c52ff7d24ff3f0535872d594f96d5fee992427666f25d) that details your account history and activity for the year. The servicer must also conduct an account analysis to determine if a [surplus, shortage, or deficiency exists](https://www.consumerfinance.gov/rules-policy/regulations/1024/17/#e-2), and notify you of its findings. If the servicer determines they’ve collected too much on your behalf, they’ll either have to issue you a refund or lower the escrow payments for the following year to offset the extra funds. If your escrow balance isn’t enough to cover upcoming tax and insurance costs, you might need to make a one-time payment or increase your future mortgage payments to make up for the difference.

### Escrow account closure

As a general rule, you can request that your escrow account be closed after you hit 80% LTV. (Some states have a different threshold—for example, in California you can choose to waive escrow if your LTV is 90% or lower.) Higher-priced mortgage loans (HPMLs) are an exception to the rule. If you have a HPML, it means the annual percentage rate (APR) on your loan significantly exceeds the average prime offer rate (APOR). In other words, the cost of borrowing the money for your loan is higher than the industry average. HPMLs are subject to [Regulation Z](https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/new-escrow-requirements-under-truth-lending-act), which requires an escrow account remain active for at least 5 years or until the loan is paid off.

## More questions about escrow? We can help.

Whether you're buying a home, refinancing, or already in the process of paying your mortgage, escrow accounts are meant to offer you financial protection. Understanding how they work and what benefits they offer can give you peace of mind during the closing process and when you start making your first loan payments. 

At Better, we’re here to streamline the process from beginning to end. [Get pre-approved](https://better.com/start) in as little as 3 minutes with Better Mortgage.

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<p class="legal">This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.</p>

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What is an escrow account? Learn how it works, and why it helps protect buyers, sellers, and lenders. Discover the types, rules, and their real estate benefits.

What is an escrow account, and how does it work?

Blog post image for What is an escrow account, and how does it work?

![Hero Image](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F4f9603252fc7450baa74ae4a7124abea) 

  </div>
  <br><br>

Becoming a publicly listed company is a monumental occasion for Better as we continue our journey to make the homeownership process cheaper, faster, and easier for all. 

In 2014, we began engineering a homebuying process that puts the needs of our customers first, with competitive rates, innovative tech, and around the clock digital service. 

While we’re always looking to the future and new ways to build the best homeownership company in America, we want to take a moment to celebrate 10 milestones that helped us get here:

1. In just seven years, Better Mortgage became the first fintech lender to achieve $100B in mortgages financed for American families.¹

2. In January 2023, Better Mortgage introduced same-day delivery to mortgages, boiling what takes weeks with other lenders down to just 24 hours with [One Day Mortgage](https://better.com/b/one-day-mortgage "external"). For the first time ever with Better Mortgage, qualifying buyers can go online the moment they win an offer, lock their rate, and get an underwritten mortgage Commitment Letter within a single day.²

3. Better Mortgage has received 20 awards throughout the year of 2023 so far. Some of these awards include Forbes Best Online Mortgage Lenders, Business Insiders Best for First-time Homebuyers, and Money’s Best Mortgage Lender for Fast Closing Time.

4. Customer dashboards are open 24/7! That means if you have a purchase contract in hand, banking hours won’t have to hold you back when you’re ready to sprint toward your closing date. You can lock your rate and kick off the underwriting process at any time.

5. Together, the launches of Better Mortgage, [Better Real Estate](https://better.com/b/realestate "external"), [Better Cover](https://www.bettercover.com/ "external"), and [Better Settlement Services](https://better.com/title "external") help our customers seamlessly buy, sell, refinance, and insure their home under one roof. And while we’re all digital, that doesn’t mean you’re alone. Our mortgage experts, real estate partners, and insurance agents are dedicated to answering questions and helping you along the way. 

6. We’re proud partners of companies we believe are the finest in their industries. In 2019, Better Mortgage partnered with Ally Bank to offer Ally customers a mortgage solution through Ally Powered by Better. Since launching, Ally & Better have grown Ally Home into a national mortgage lender, serving tens of thousands of customers along the way.  

7. Our market has been extended to serve borrowers internationally! We recently acquired Trussle (now Better UK), the UK’s most innovative online mortgage broker.³

8. Better has offices in Charlotte, NC; Irvine, CA; India, and the UK. New York City is home to our headquarter office (which is located in the World Trade Center!) Thank you to our teams across the country and globe that invest and contribute to our collective success. 

9. We’re proud of the talented loan officers that make up the team at Better. Take Marissa Gurtler, Ahmed Jadallah, Jared Clark and Robert Caldwell, who were recognized as winners in the Scotsman Guide's Top 100, the industry's most comprehensive, verified rankings of the nation's top producing residential mortgage brokers, originators, loan officers, and bankers. 

10. Better Mortgage has issued 1,300,000 pre-app letters, spent over 66,000,000 minutes speaking with borrowers, and funded over 406,000 customers.  Thank you to all the Better homeowners that have helped us build our legacy and believe in the power of digital homebuying. We are excited to continue to build a better way home.  

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¹ Source: [Business Wire](https://www.businesswire.com/news/home/20221003005264/en/Better-Surpasses-100B-in-Mortgages-Funded-for-American-Families "external") 
² Better Mortgage’s One Day Mortgage promotion offers qualified customers who provide certain required financial information/documentation to Better Mortgage within 4 hours of locking a rate on a mortgage loan the opportunity to receive an underwriting determination from Better Mortgage within 24 hours of their rate lock. The underwriting determination is subject to customary terms, including fraud and anti-money laundering checks, that take place pre-closing and which may trigger additional required documentation from the customer. Better Mortgage does not guarantee that initial underwriting approval will result in a final underwriting approval. See OneDay Mortgage Terms and Conditions.
³ [Business Wire](https://www.businesswire.com/news/home/20210712005413/en/Better-Announces-Acquisition-of-Trussle-Lab-Ltd.-The-UK%E2%80%99s-Most-Innovative-Online-Mortgage-Broker-Approving-Over-GBP-1.1BN-in-the-Last-12-Months-to-Help-Make-Getting-a-Home-Faster-Cheaper-and-Better-for-Britons "external") 

<p class="legal" style="margin-top: 40px">  Disclaimer: This post does not constitute an endorsement or recommendation of Better Mortgage Corporation; Better Real Estate, LLC; Better Cover, LLC; Better Settlement Services, LLC; or their services. Better Cover is solely responsible for homeowners insurance services. Better Mortgage is solely responsible for making all credit and lending decisions with respect to mortgage loans. 
<br>
 ¹Source: <a class="textlink" href="https://www.consumerfinance.gov/rules-policy/regulations/1026/interp-19/#19-e-2-ii-Interp-1"> Consumer Finance Protection Bureau </a> 
<br>
²Source: <a class="textlink" href="https://www.consumerfinance.gov/rules-policy/regulations/1026/interp-19/#19-e-2-ii-Interp-1"> Consumer Finance Protection Bureau  </a>

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Better has officially gone public! Explore 10 pivotal milestones that defined our mission to transform the mortgage process and make homeownership accessible.

10 milestones on Better’s road to going public 

Blog post image for 10 things you didn't know about Better

10 things you didn't know about Better

![Two People Reviewing a Document in Front of Window in Living Space, One Person is Holding the Document, the Other is Holding a Baby](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F681e6032813445b9806c8af3654c03d2)

 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">How a home inspection works and why it’s important</p>

<p class="learnfont">What to do with the results of your home inspection</p>

  <p class="learnfont">When to schedule your home inspection</p>

  </div>
  <br><br>

After you make an offer on a house, there’s not much to do but wait. While you’re dreaming of the words every homebuyer longs to hear (“Your offer got accepted!”) why not focus on prepping for what comes next: the home inspection. 

Inspections are an opportunity to “kick the tires” on your potential home and identify any red flags before finalizing things with the seller. In most parts of the country, you’ll work with [a licensed home inspector](https://better.com/content/how-to-assemble-your-home-buying-team/) who knows what to look for, what to test, and how to proceed based on the results of what they find during this process. Need a crash course in home inspections? Here’s what you should know: 

## What is a home inspection? 

Inspections are a critical part of buying any home. This is your chance to see if a particular house is up to code and structurally sound before you get to the closing table. The purpose of a home inspection is to assess the current condition of a property and identify potential problems, damages, or necessary repairs. Most offers are [“contingent”](https://better.com/content/home-inspection-checklist) upon the results of the home inspection, meaning you have the option to back out of the purchase if you don’t like what you find. 

By the time you bid on a home, you’ve presumably done [a cursory evaluation](https://better.com/content/what-to-look-for-when-touring-a-home/) to ensure it meets your standards. Visiting in person (or even virtually!) can give you a gut sense of the shape a house is in, and help you spot obvious issues like water damage or outdated roofing. But a formal inspection is more thorough—it’s a comprehensive, floor-to-ceiling evaluation conducted by a professional who has your best interests in mind. Home inspectors can also help you spot things below the surface (plumbing, foundation, electrical, or otherwise) that drive up costs in the long-run or even impact your decision to buy the property. 

## What does a home inspector checklist include? 

Home inspectors are concerned first and foremost with the safety of a home. They’re also focused on flagging potential costly issues and identifying repairs that need to be made either now or in the immediate future. To give you an idea of how the process works, we assembled a basic rundown of what a home inspector will assess. Keep in mind that inspection standards can vary state by state; while this isn’t an exhaustive list, it’s a good starting point for anyone looking to learn more about how the process works: 

#### Grounds and landscaping

Property maintenance and upkeep is the homeowner’s responsibility; your lot can have an impact on the condition and safety of your home. Here are a few of the most common things an inspector will look for: 

- Drainage to direct water and runoff away from the house
- No branches or trees hanging over the home 
- Walkways and driveways in good condition  
- No pest damage or rot in garages, fences, sheds
- Safety railings installed on decks, porches, stairs

#### Home systems  

Effective temperature control, good water pressure, proper wiring—these are just a few of the things that keep your home safe and liveable. An inspector will evaluate these following systems with a fine-toothed comb to confirm they’re fully operational and safe. Here are a few of the most common things an inspector will look for:  

__HVAC__ 

- Heating/cooling reaches all rooms 
- Proper insulation installed in home and attic
- Good ventilation throughout home
- Clean air filters and ductwork 
- No rust or other damage to cooling unit

__Plumbing__

- No leaks in kitchen or bathroom 
- Caulking and tiles in good condition 
- Toilet, tub, and shower operational 
- Effective drainage and exhaust systems 
- Good water flow and pressure to all fixtures
- No rust or signs of decay/damage
- Pipes visible and in good condition 
- Hot water heater operational 

__Electrical__

- Outlets and lights working properly 
- Outlets up to safety codes in each room 
- Visible wiring, properly secured and terminated
- Service panel in good condition, not overheating 

__Safety__

- Smoke detectors and fire alarms operational
- Carbon monoxide alarms operational 
- Well water conditions meet safety standards
- Hot water temperatures at normal levels
- No presence of mold or asbestos in the home

#### Exterior of home 

The roof, siding, windows, and doors protect your home from the elements and they need to be properly maintained. Here are a few of the most common things an inspector will look for: 

- Roof and siding in good condition, no damage
- Windows and door frames plumb straight, airtight
- Level foundation, no sagging, bowing, cracking
- Paint job in good condition, no flaking or chipping
- No stains, vines, or rot on any exterior surface
- No broken glass or ripped screens
- Properly installed and cleaned vents
- Gutters and chimneys in good condition 

#### Interior of home 

Fireplaces, attics, and basements have lots of component parts that can pose serious threats to safety if damaged. Here are a few of the most common things an inspector will look for: 

- No evidence of water damage or rot on walls, ceilings, floors
- Windows and doors open, close, and lock properly 
- Fireplace fully operational, no evidence of damage
- Walls and ceilings are straight and level 
- Built-in appliances working properly
- Basement and attic clear of damage

## Things that fail a home inspection 

Home inspection reports are supposed to include detailed notes about things ranging from small cosmetic blemishes to extensive structural damage. You probably won’t have to pump the brakes on buying your home for minor stuff. It’s a different story if the findings are significant enough to fail the inspection. In general, if the issue is pervasive (affects the overall integrity of the home) or expensive to fix (posing a significant additional cost to the buyer), it might be reason enough to fail a home inspection: 

- __Structural damage.__ From cracks in the foundation to water damage in the basement, structural problems can be expensive to fix and jeopardize the overall safety of a home.  
- __Roof damage.__ Roofing acquires wear and tear at different rates, depending on the material. A poorly maintained roof can be prone to leaking or collapse, which puts the entire home in danger. 
- __Electrical issues.__ The consequences for improper or outdated wiring can be high, with the biggest concern being an electrical fire. Keeping electrical systems up to code is essential. 
- __Plumbing problems.__ Water and sewage leaks can be the source of extensive structural damage. On top of that, appliances like hot water heaters are expensive to repair. 
- __Evidence of pests.__ Termites and other bugs can wreak havoc on the structural integrity of a home. Any indication of pests needs to be investigated and addressed. 
- __Mold, asbestos, lead.__ Health and safety are the top priorities in a home inspection; any of these three substances can pose a significant risk to residents. 

## How long does a home inspection take?

From start to finish, a home inspection usually takes 2–3 hours. Afterward, the home inspector will give you a report on the condition and structural integrity of the home. If the results of the inspection indicate major updates are necessary, you’ll have a chance to rescind your offer, negotiate with the seller about making repairs before the sale goes through, or reduce the [purchase price](https://better.com/content/your-mortgage-price-the-determining-factors) to compensate for unexpected costs.

## How much does a home inspection cost? 

Inspectors are buyer advocates. As such, it’s the buyer’s responsibility to find a qualified inspector, schedule the visit, and pay for the inspection. While home inspections aren’t technically required to get a loan, they are considered part of your due diligence as a buyer. A typical inspection will cost a few hundred dollars—there might be additional costs depending on where you live and if you need extra services, such as a pest inspection—but can save you thousands in the long-run. 

Home inspection reports can also provide important insights going into [the appraisal process](https://better.com/content/home-appraisal-process/). Lenders rely on appraisals to determine the value of your home and confirm that this value matches the amount they’re planning to lend you. A home inspection report will tell you if there are any deal-breakers upfront, and potentially save you the cost of the appraisal altogether if you decide not to go through with the transaction. If you do move forward, your home inspection results will be an indicator of what to expect from the appraisal. If there are appraisal issues (for example, major repairs that drag the appraised value below the asking price), you can ask the seller to make the necessary repairs or adjust the price to reflect the appraised value. Either way, you’ll want to come to an agreement quickly to prevent a delay in the loan process—your loan can’t get finalized until necessary updates are made.

## Home inspection tips for buyers

It might go without saying, but the best thing you can do to ensure a successful home inspection is to enlist the services of a reputable home inspector. [Ask your real estate agent](https://better.com/faq/better-real-estate/who-are-better-real-estates-agents) if they have someone they can refer, and do your own research to make sure they’re a good fit for your needs. A quick search online may turn up reviews from other homebuyers. You can also confirm that your home inspector is indeed licensed (or at least accredited, depending on your state). Some states, such as California, do not currently require home inspectors to have a license. However, they may be certified by a trade association anyway.

Beyond that, you should always make sure that the right to a home inspection is written into the contract as a contingency clause. It’s not enough to get a verbal “sure thing!” from the seller; you need the terms and timeframe in writing. This will be especially helpful if it turns out the home is riddled with problems and you need to get your earnest money back. Also, on the off chance that you’re buying from a family member/friend/someone you know and trust, you should still insist on getting a home inspection. In fact, if anything, it’s *more* important to get a home inspection in these circumstances. Can you imagine how awkward it would be if Aunt Mavis sold you that mid-century modern ranch she’d been holding onto for years, and then you moved in and discovered the roof needed $50,000 in repairs?

Of course, you shouldn’t expect to get an impeccable report back from your home inspector, either. All homes have flaws—even those that are supposedly “turnkey” or move-in ready. Ideally, any flaws that *are* surfaced in the home inspection are the kinds of minor issues that you can either learn to live with or choose to fix at a relatively low cost after you move in. In the event that there are larger issues with the home, your real estate agent may advise you to go back to the negotiation table to ensure that the seller repairs the home before you close or compensates you for repairing it yourself.  Remember, if you’re not happy with the results of your home inspection report, you can also choose to back out of the offer (and get your earnest money back!) [before the contingency date](https://better.com/content/what-is-a-mortgage-contingency-and-why-is-it-important/) within your purchase agreement. 

## Organizing a home inspection

So, when do you need to schedule your inspection? After you make a bid on a home and it’s accepted by the seller, it’s time to find a home inspector. With that said, we recommend researching local home inspectors in advance of making an offer. By getting a jump on this to-do, you’ll be prepared as soon as the seller accepts. 

This is just one way to streamline your homebuying experience with Better Mortgage. Our automated and digital process will also speed up the process and help you close your loan 10 days faster than the industry average. Ready to see how easy it is? Start by getting pre-approved in as little as 3 minutes. 

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Use our house inspections checklist to prepare for your home inspection, spot red flags, estimate costs, and negotiate repairs before you close on a home.

House inspections checklist: what buyers should know

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![Settlement and Title Services - Two Men Looking at Laptop](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F28ee414d321f4b39bee98fb3b8ca6c08)

 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">What title services are and why they matter</p>

<p class="learnfont">What to expect from a title company</p>

  <p class="learnfont">The issues settlement services may uncover</p>

  </div>
  <br><br>

If you have already received your [Loan Estimate](https://better.com/content/a-quick-guide-to-your-loan-estimate/), you may also notice a cost for “[title fees](https://better.com/content/understanding-title-fees/).” These fees cover the costs for the title insurance and settlement fees that relate to title due diligence work, preparing settlement documents, and issuing title insurance. In short, the title company’s role is to take care of all the behind-the-scenes work that needs to happen before you can close on a home purchase or refinance.
Here's a rundown of title and settlement services, how these services get you to closing, and what to expect from the process:

<h2>What is title?</h2>

“Title” refers to the legal ownership rights to a home. Before a home purchase or refinance transaction can close, the property must have a “clear” title, meaning no one has a claim to it in the form of outstanding liens or debts. Your title company is responsible for finding anything that can hinder a clear title, and, if anything is discovered, they will take corrective action to enable the transaction to go through, [which allows you to have title insurance](https://better.com/content/what-is-title-insurance-and-why-do-i-need-it/), to continue on in the loan process, and will provide you peace of mind about your investment.

<h2>What does the title company do?</h2>

A title company handles the review of any title claims and prepares for the closing. They also typically manage the escrow account, which holds funds that must be set aside for the home purchase or refinance until certain conditions are met or the transaction is complete and the funds are disbursed to the necessary parties. For example, if you’re buying a home and you’ve made [an earnest money deposit](https://better.com/content/earnest-money/), these funds will usually be held in the title company’s escrow account.  

While the title company may not seem as present during a loan transaction as your real estate agent or lender, they are an equally important part of the team. The work they are conducting behind the scenes is crucial to make sure you get to the closing table. 

Here are the steps title companies take during a mortgage transaction to get you to closing.

<h4>1. Title search and examination</h4>

One of the first steps in the title process involves a bit of detective work. Your title company will do some research to learn about the history of the property. This is commonly referred to as a title search. For all transactions, this search will show the home’s past ownership details and uncover any red flags that could halt the home sale or refinance. 

For home purchase transactions, the title search will also identify all owners who have interest in the transfer of the property and who will be required to execute vesting documents at the time of closing.

The title company will also look for and examine liens or judgments against the property for bankruptcy cases, divorce agreements, outstanding mortgages, overdue property taxes, and other debts. These outstanding balances must be paid before the transfer of ownership. 

A title search may also reveal property restrictions or limitations. Some details that might arise are:

- Boundary issues, if the home or other structures were built outside of property lines 
- Easements that could give other parties, such as utility companies, government agencies, or businesses access to your land
- Restrictions or historical status that could mean certain rules must be followed on how you can change or modify the home

The purpose of these exams is to protect you and the lender from being on the hook for any unresolved title issues—for example, mistakes in public records, erroneous surveys, or property or building code violations. It’s important to discover these issues before closing, so that you don’t inherit these problems.  

If any snags arise during a title examination, not all will necessarily prevent you from closing. The property title must simply be clear before you can buy the home or refinance your mortgage. If there are any holdups that could prevent you from closing, your processing expert will communicate those to you as soon as they are identified. 

 <h4>2. Fix any errors and resolve title issues</h4>

 If the title company finds any issues, they can start working to resolve them immediately to keep your closing on schedule. They may chat with the seller to learn more about ownership disputes, and they may ask for paperwork to prove someone else doesn’t own the home. For example, if the problem involves an unpaid roofing bill, the title company may need to resolve it with the current owner and contractor.     

 <h4>3. Issue title insurance</h4>

 After a title company is confident that a property is free of title defects, they have the green light to move forward and [issue title insurance policies](https://better.com/content/what-is-title-insurance-and-why-do-i-need-it/). This protects both homebuyers and lenders against claims for things that happened in the past, such as previous owner liens or ownership issues. 

While a lender’s title insurance policy is required in every purchase or refinance mortgage transaction, an owners’ policy is separate and optional. With that said, buyer protection is recommended to ensure that you, as the new homeowner, are protected from any potential legal issues that may arise from the past. If you do choose to purchase an owner’s policy, it will remain active in the event you refinance your mortgage at a later date.  

 <h4>4. Settlement and signing</h4>

 With a clear title and title insurance policy—and after all other items required by the lender are complete—the title company can schedule a closing date, which is also known as the settlement date. Your title company and lender will work together to prepare the closing paperwork.

On settlement day, you should be prepared to sign your [closing package documents](https://better.com/content/what-is-closing-package/), which include purchase or refinance mortgage paperwork. For a home purchase, it will also include the transfer of ownership agreement for the property. 

You may also need to write a check or wire money for closing costs and mortgage escrow for homeowners insurance and property taxes. After signing and notarizing all the necessary paperwork, the documents will be sent back to the title company to review, before being sent to the lender. Once all of the paperwork is approved, the lender will send the money to the title company, who will then disburse the funds. 

 <h4>5. Mortgage recording and funding</h4>

 If everything on your closing day goes according to plan, the title company will submit your mortgage for recording at the county records office. Then, local officials will make note of the details for public record. At this point, the title company will disburse funds for the new mortgage loan, and taxes and homeowners insurance (if applicable). If you’re refinancing, the title company will pay off your previous mortgage and, for a [cash-out mortgage refinance](https://better.com/content/cash-out-refinancing-gives-you-options/), send you funds.

 <h2>Title and settlement services are essential </h2>

While the title and settlement process may seem less exciting than, say, picking out custom kitchen finishes or new hardwood floors, it's a critical step in the [homebuying and mortgage process](https://better.com/content/home-buying-process-timeline/). Most of the title services work will happen behind the scenes, but you can relax once your lender approves your mortgage and you know the home is rightfully yours. 

Better Mortgage has an affiliated title company to make the whole process a lot easier. Start your mortgage journey with us and experience it yourself today.

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Learn how title and settlement services help you close on a home, from title searches to insurance, escrow, and signing, plus what to expect at every step.

Title and settlement services: A step-by-step walkthrough

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![Frame 368351](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F801210f3963e4fad8235e61dd8868dc5)

 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">How divorcing couples can handle their mortgage</p>

<p class="learnfont">How to remove someone from your mortgage</p>

  <p class="learnfont">The difference between updating your mortgage and property title </p>

  </div>
  <br><br>

The divorce rate has declined from 4.0% to 2.5% since 2000.¹ While we’re glad to see progress in this trend, we know that divorce still happens. And if it does, we want to help homeowners understand how to make their situation better. 

Those going through a divorce will need to consider the different routes available when it comes to handling the ownership and mortgage of their home. Dealing with a co-owned property amidst the motions of divorce can feel stressful. Luckily, there are well established paths for handling this situation—which is faced by many. In 2022, more than fifty percent of couples that divorced were homeowners.² 

## How to handle your mortgage after divorce

On its own, a divorce doesn’t release you from the mutual debts of your marriage. These are the most common scenarios for homeowners who are handling a shared home during their divorce: 

1. The divorcing couple sells their home and then divides the assets 

2. One partner is removed from the mortgage and title of the home, while the other partner assumes ownership and takes over the mortgage. Sometimes, one partner will need to be paid out via an equity buyout. For example, if there was $200,000 in home equity, the vacating spouse would receive $100,000 to split the equity 50/50. 

Divorcing couples that choose the second route will have to remove their ex-spouse from the mortgage via a release of liability or, more commonly, a refinance. 

### Release of liability 

A release of liability is a document provided by the lender servicing the loan that releases a borrower from their responsibility to pay the loan. To obtain a release of liability, the person remaining on the loan goes through a qualification process resembling that of a mortgage in order to confirm that they can pay the mortgage on their own. Many lenders do not offer these because it makes the loan riskier for the lender. That’s why a refinance is a more common tool. 

### Cash-out refinance 

A cash-out refinance allows homeowners to refinance their mortgage for more than the outstanding balance—converting home equity into cash while updating and removing the vacating spouse from the existing mortgage. The cash-out refinance route is a good option for those that need to convert home equity into cash in order to pay out the vacating partner’s portion of home equity.

### Rate and term refinance

Like a cash-out refinance, a rate and term refinance allows homeowners to update their existing mortgage; the interest rate, the term, and the people listed on the mortgage. Rate and term refinances typically have lower rates than a cash out, so this route often makes sense when you don’t need to take out home equity in order to pay out the vacating spouse. 

### Mortgage vs title

Remember that a mortgage defines responsibility for mortgage repayment while title defines ownership to the property. If both spouses are on the title, you will also need to remove the vacating spouse from the title during the refinance process. If the vacating spouse is only on the title (and not on the mortgage) homeowners can update the title of their home through a quitclaim deed, a legal document that transfers the title of a property from one party to another.

Homeowners that decide to use a refinance while handling a divorce should contact a lender to review their options. Keep in mind that only the spouse that remains on the mortgage will be able to use their income and assets to qualify, taking into account any alimony and child support payments they will be making or receiving.

<br> 

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<p class="legal" style="margin-top: 40px">  Disclaimer: This post does not constitute an endorsement or recommendation of Better Mortgage Corporation; Better Real Estate, LLC; Better Cover, LLC; Better Settlement Services, LLC; or their services. Better Cover is solely responsible for homeowners insurance services. Better Mortgage is solely responsible for making all credit and lending decisions with respect to mortgage loans. 
 <br>
 ¹Source: <a class="textlink" href="https://www.forbes.com/advisor/legal/divorce/divorce-statistics/"> Forbes </a>
 <br> 
 ²Source: <a class="textlink" href="https://www.forbes.com/advisor/legal/divorce/divorce-statistics/"> Forbes </a>

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Two ways that refinancing can benefit homeowners going through a divorce

Handling your mortgage during a divorce | Better Mortgage

Blog post image for Divorce and mortgage: navigating homeownership changes

Divorce and mortgage: navigating homeownership changes

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 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">What a debt-to-income (DTI) ratio is</p>

<p class="learnfont">Why DTI matters when buying a home</p>

  <p class="learnfont">How to calculate your debt-to-income ratio</p>

  <p class="learnfont">What mortgage lenders consider a good DTI and how to lower yours</p>

  </div>

## Table of contents

- [What is a debt-to-income ratio for mortgages?](#1)
- [How to calculate debt-to-income ratio for a Mortgage](#2)
- [DTI Requirements by Mortgage Type](#3)
- [What is a good debt-to-income ratio for a mortgage?](#4)
- [Conventional loan DTI requirements](#5) 
- [FHA loan DTI requirements](#6)
- [How to improve your DTI ratio](#7)

When you apply for a mortgage or any other type of loan, the top three things lenders look at are your income, your credit score, and your debt-to-income ratio, or DTI.
The first two are fairly self-explanatory—but what is DTI? And how do lenders use it in the mortgage process?

In short, your DTI is the balance between all the money you have coming in every month (income) and how much you’re obliged to pay every month to creditors (debt). This helps lenders know how safe or risky it would be to approve your loan.

Below, we’ll help you understand all the factors that make up your DTI, how to calculate it for yourself, and how to optimize it to get the best terms in your mortgage.

<div id="1"></div><h2>What is a debt-to-income ratio for mortgages?</h2> 

A DTI ratio simply represents how much of your gross monthly income is spoken for by creditors, and how much of it is left over to you as disposable income. 

It’s most commonly written as a percentage. So, for example, if you pay half your monthly income in debt payments, you would have a DTI of 50%. 

<div id="2"></div><h2>How to calculate debt-to-income ratio for a Mortgage</h2> 

Okay easy enough, but your ratio is likely not as clear-cut as “half your income” (and, as you’ll see later on, ideally it’ll be much less). How do you calculate your debt-to-income ratio? There’s math involved, but thankfully it’s pretty basic (no trigonometry required).

Simply divide all your monthly debt payments by your gross (pre-tax) income, and then multiply that number by 100. This will give you your DTI percentage.  

![Formula for calculating your debt-to-income ratio](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F16baf6fd48da4deea516590cbeed3ca6)

In some cases, what constitutes “income” and “debts” is clear-cut. In other cases, not so much. Generally, lenders follow these guidelines for what to include for each. 

__Debt__ includes:

- Future or estimated monthly housing expenses (mortgage payment, homeowners insurance, property taxes)

- Student loans

- Auto loans

- Personal loans

- Minimum required credit card payments 

__Income__ includes:

- Pre-tax monthly salary (determined by dividing your annual salary by 12)

- Income from additional jobs or side hustles

- Revenue from rental property or other investments

- Regular income from annuities, trust funds, and retirement accounts

- Any child support or alimony payments you receive

Let’s look at a real-world example:

![How to calculate your debt-to-income ratio for a mortgage](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2Fa8e85d916c06432988ffc7343ae72bcd)

<p class="legal">The above scenario is for illustrative purposes only.</p>

<div id="3"></div><h4> DTI Requirements by Mortgage Type</h4>

Different types of mortgages have their own DTI requirements. For example, at Better Mortgage, the maximum DTI for FHA loans is 55%, and 50% for Conventional loans, while VA loans do not have a set maximum. It's important to understand these requirements when considering different mortgage options.

<div id="4"></div><h2>What is a good debt-to-income ratio for a mortgage?</h2> 

The lower your DTI, the better—this means less of your income is tied to recurring debt payments, and you’ll likely be more able to continue making payments on time even if you experience a minor financial setback. Borrowers with higher debt obligations relative to their incomes are less able to absorb those setbacks, and are at greater risk of defaulting on their loan. This is why high DTI is the [#1 reason](https://www.corelogic.com/intelligence/buy-stories/debt-to-income-is-the-number-one-reason-for-denied-mortgage-applications/ "external") mortgage applications get rejected.

So, what’s the magic number when it comes to DTI? Well, it varies slightly based on the [type of mortgage](https://better.com/content/types-of-mortgage-loans/), the lender, and other aspects of your financial profile.

Typically, though, most lenders prefer to see a DTI of under 36%. In other words, the total of your monthly debts, including your estimated monthly mortgage payment, will be less than 36% of your monthly gross income. However, it may be possible to get a mortgage with a DTI of up to 50% depending on the lender. If you have a DTI of 50% or higher, then it could be challenging or even impossible to get approved for a mortgage until you [lower your debt-to-income ratio](https://better.com/content/improving-your-debt-to-income-ratio-dti-when-applying-for-a-mortgage/).

![Debt-to-income (DTI) ratio brackets for a mortgage](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F53b282d1d03741d4a43ff67b4718aa51)

<div id="5"></div><h4>Conventional loan DTI requirements</h4>  

A [conventional mortgage](https://better.com/content/conventional-loan-requirements/) is a home loan offered by a private lender—such as a bank or a mortgage company. Private lenders tend to have a little wiggle room when it comes to DTI, depending on the exact loan you’re applying for and your personal situation. But that wiggle room can only go so far, because DTI requirements are typically based on policies created by government-backed lenders like [Fannie Mae](https://selling-guide.fanniemae.com/sel/b3-6-02/debt-income-ratios) in order to protect customers. 

While many lenders require a DTI of no more than 43%, some lenders, including Better Mortgage, can provide mortgages to borrowers with DTIs up to 50%. This means even if your DTI is 49.999%, you could be eligible for a home mortgage loan.

<div id="6"></div><h4>FHA loan DTI requirements</h4>

[FHA loans](https://better.com/content/fha-homeready/) are mortgages backed by the Federal Housing Administration (FHA) and offered by an approved list of lenders (including Better Mortgage). The FHA is a government organization that insures these loans if their borrowers default. 

FHA mortgages require a lower minimum down payment and credit score than many conventional loans. This flexibility helps make homeownership more attainable for first-time homebuyers or those with lower income levels who may be ineligible for conventional loans. 

The maximum DTI for FHA loans is usually up to 50%, though this [may go higher](http://www.fhahandbook.com/debt-ratios.php "external") if you can meet other compensating factors. 

<div id="7"></div><h2>How to improve your DTI ratio</h2>

If you’ve run the numbers and you’re concerned that your DTI isn’t as low as you’d like it to be, there are two main ways you can decrease it: reduce your debt or increase your income. [Lowering your DTI](https://better.com/content/improving-your-debt-to-income-ratio-dti-when-applying-for-a-mortgage/) can make the mortgage process go smoother, so it might be worthwhile if you have time before you apply for a new mortgage or refinance. 

Here are a few DTI reduction strategies to consider:

- Pay down or pay off your car loan before applying for your mortgage.

- Start paying off your credit cards in full, one by one. (Just don't close the cards after you pay them off, as this can hurt your credit score.)

- If possible, refinance or consolidate current loans to reduce your monthly payments.

- Consider adding a [co-borrower](https://better.com/content/should-you-add-a-co-borrower-to-your-mortgage/) with a low DTI to your loan.

- Pick up a side gig or part-time job to help pay down debt.

- Expecting a raise or promotion in the next few months? Consider waiting to apply until it goes through.

- Consider using some of your down payment savings to pay down debt. Just make sure you’ll meet down payment guidelines, which can be as little as [3% to 5%](https://better.com/content/5-percent-down-payment/).

## Get clarity on your DTI with a pre-approval

At Better, we want you to be as prepared for buying a home and the mortgage process as possible.

Applying for a [pre-approval](https://better.com/preapproval/nxt-purchase?utm_source=website&utm_medium=webpage&utm_campaign=blog&utm_content=what-is-good-dti) takes as little as 3 minutes and will provide you with a clear picture of how much you can afford. You’ll undergo a soft credit check (which doesn’t affect your score) that allows our underwriters to look at your debts, income, and credit in detail to obtain a more accurate picture of your DTI.

Although your DTI ratio is just one important factor to consider when buying a home, carrying less debt relative to your income will make it easier to get a mortgage and help ensure you’ll be able to afford your home for years to come.

Better Mortgage can help you understand your DTI and the financing options available to you. Start your pre-approval process today.

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapproval/nxt-purchase?utm_source=website&utm_medium=webpage&utm_campaign=blog&utm_content=what-is-good-dti">Get pre-approved</a>  
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Learn all about what a debt-to-income ratio (DTI) is, what a good debt-to-income ratio looks like, and why it matters when taking out a home mortgage.

What is a good DTI ratio for a home loan?

Blog post image for What is a good DTI ratio for a home loan?

![Purple Image with an Ellipse with the Front of a Condo Within and a Half Golden Circle to the Right](https://cdn.builder.io/api/v1/image/assets%2Fea37b90b89334a2ab1714e2159c75418%2F4e50b45919444ef781f46d18a8f88d08)

# Discover how FHA condo approvals work, including loans and eligibility criteria. 

Dive into our blog for all the details.

## What is FHA condo approval and why is it necessary?

FHA condo approval is a certification process that allows condominium projects to become eligible for FHA-insured loans. It ensures that the condo project meets certain standards and requirements, providing assurance to lenders and buyers that the property is financially stable and a good investment.

 <br>
  <div class="learn">
<p class="learnfont"><strong>What You’ll Learn</strong></p>

<p class="learnfont">The kinds of condos you can buy with an FHA loan</p>

<p class="learnfont">How to qualify for an FHA loan</p>

  <p class="learnfont">What to do if the condo you want isn’t FHA approved</p>

  </div>
  <br><br>

If mowing the lawn, cleaning the gutters, or washing windows isn’t your idea of a fun weekend activity, a condo may be the right home for you. Condos typically cost less than single-family homes, you’re only responsible for maintaining the interior, and they’re often located close to amenities. In fact, larger condominium neighborhoods may even have shared amenities such as swimming pools, pet parks, and even golf courses. If you’re a homebuyer with a smaller down payment, lower credit score, or higher DTI, an FHA loan could be the way to make homeownership happen. Additionally, condo owners pay condominium association dues for the upkeep of shared common areas, such as garages, pools, outside hallways, gyms, and clubhouses.
Before you make the big decision to let a specific condo steal your heart, it’s important to know about the FHA condo approval process. Not all condos are available to homebuyers with an FHA loan because FHA loans are insured by the Federal Housing Administration (FHA) and there are strict payment requirements for the kinds of condos the FHA will approve. If a condo doesn’t make the FHA’s list, you won’t be able to buy it with an FHA loan. So let’s dig into which condos are FHA approved, how to get an FHA loan, and what to do if the condo you want isn’t on the FHA’s list.

## What is an FHA approved condo?

For a condo to be approved for an FHA loan it must be on the FHA’s list of approved condominium projects. To make the FHA’s approved condo list a condo must meet 3 basic requirements:

- It must be **primarily residential**.
- It must contain at least **two dwelling units**.
- It must be either **detached, semi-detached, a row house, a walk-up, mid-rise, high-rise**, including those with or without an elevator, or manufactured housing.

[In 2019, there were 150,000 condominium projects across the country, but only 6.5% of them qualified for FHA financing](https://www.spglobal.com/marketintelligence/en/news-insights/trending/_rm_ulplkwzhn1akd2gm8a2). Since then, new rules have been introduced to enable individual condo units to be eligible for FHA loans even if the full condo development isn’t approved. This is to increase the number of FHA approved units by up to 70,000 new units per year. Under the new rules, the FHA loan approval process evaluates the entire condominium project, not just the individual unit. Single condos within projects that are not approved can now be approved through a single-unit approval process sometimes called “spot approval.” The FHA loosened its eligibility requirements for condo owners in 2019, allowing individual condo units, including manufactured homes, to be eligible for FHA loans even if the full development isn't approved. This change, known as "spot approval," has opened up more opportunities for condo buyers to secure FHA financing.

Despite the new guidelines, “Condo hotels,” timeshares, houseboat projects, or condos that feature more than one dwelling in a single condominium unit are ineligible for homebuyers who need FHA financing.

## How to find out if a condo is FHA approved

The U.S. Department of Housing and Urban Development (HUD) maintains [this list](https://entp.hud.gov/idapp/html/condlook.cfm) of condominiums that are approved for an FHA condo loan.

To search for FHA approved condos you’ll need the state, county, and maybe the zip code (if you’d like to narrow your search to a more specific area). The list includes condominium projects that are approved, expired, rejected, or withdrawn, so select ‘approved’ status to make sure the condo you’re interested in can be financed with an FHA loan.

If a condo has already caught your eye, all you need is the condo name and state to see if it’s on the list. Alternatively, you could work with an experienced [real estate agent](https://better.com/realestate) who’s familiar with both FHA approved condos and the neighborhood where you’re hoping to buy.

## How a property gets approved for an FHA condo loan

As a homebuyer, this is more of a nice-to-know because no matter how much you want to buy a condo that’s not on the FHA approved condo list, it’s not your responsibility to get the condo FHA approved. The condo developer or their agent is typically responsible for getting their condominium project FHA approved. If the condo has been around for a while, the condo association or their management company submits the condo approval package. Additionally, it is important to note that the condo’s homeowners association (HOA) must have at least 10% of its HOA budget in a cash reserve to meet FHA requirements for commercial use.

If you want to learn about what goes into a condo approval package, or would simply enjoy some “light bedtime reading,” this 95-page [Condominium Project Approval and Processing Guide](https://www.hud.gov/sites/documents/11-22MLGUIDE.PDF) covers all the documentation and requirements the FHA needs to approve a condominium project.

Here are the highlights:

- The condominium project must have adequate insurance coverage
- Commercial space must not be more than 25%, up to a maximum of 55%, 35% of the project’s total floor space, depending on the project. 
- No more than 10% of the total units can be owned by one investor
- The project’s area structures, as well as the housing units themselves, must be complete
- Bylaws and covenants of the condominium must not violate the [Fair Housing Act](https://www.hud.gov/program_offices/fair_housing_equal_opp/fair_housing_act_overview)
- Condos, aka ‘condotels’, that double as a resort-type property are prohibited
- The project must be located a reasonable distance away from transportation infrastructure
- At least 50% of the units must be owner-occupied
- No more than 15% of units in the property can be behind on their homeowners association dues
- The project must have adequate capital reserves

As you can imagine, it can be time-consuming and often costly to get a condo project FHA approved and that’s why most condominium projects forgo FHA approval. Instead, they’re built in the hope that buyers use a [conventional loan](https://better.com/content/conventional-loan-requirements/) to finance their condo purchase.

## FHA condo requirements

There isn’t a specific FHA mortgage condo loan per se. You’ll need to be approved for an FHA mortgage loan and find a condo to buy on the FHA approved condo list. FHA mortgage loans have specific requirements for the types of residences you can buy, so you’ll be pleased to know that if you want an FHA-approved condo to be your primary residence, the property will automatically meet FHA mortgage loan requirements. However, it's important to note that investment properties and vacation homes are not eligible for FHA loans.

To be eligible for an FHA home loan you’ll typically need (keep in mind some requirements may vary by lender):

__A.__ A credit score within the eligibility range based on your down payment amount or even your lender’s specific requirements:

  1. If your down payment is 3.5%–9.9%, you’ll need a credit score above 580

  2. If your down payment is 10%, a credit score between 500–579 will suffice

  3. If applying through Better Mortgage, credit score of at least 580 is required to qualify

__B.__ A [debt-to-income (DTI)](https://better.com/content/3-most-important-numbers-mortgage-application/) ratio of 43% or less

__C.__ Evidence of steady income and proof of employment

__D.__ To make [mortgage insurance premium](https://better.com/faq/home-purchase-loan-costs/what-is-mortgage-insurance-premium-mip) (MIP) payments, in most cases for the life of the loan in most, plus a one-time upfront MIP payment equal to 1.75% of the loan amount


MIP is similar to [private mortgage insurance (PMI)](https://better.com/content/what-is-pmi-or-private-mortgage-insurance/), which borrowers with [conventional mortgages](https://better.com/content/conventional-loan-requirements/) need to pay if their down payment was less than 20%. Conventional mortgage borrowers will automatically stop paying PMI once they’ve reached 22% equity in their home (when they have 20% equity in their home, they can request an end to PMI). MIP, on the other hand, must be paid for the life of most loans. If your down payment is more than 10%, however, you can ask for MIP to end after 11 years of payments.

FHA [home loan requirements](https://better.com/content/conventional-loan-requirements) also allow borrowers to make down payments using gifted money from family or a friend. In this case, a [gift letter](https://better.com/content/how-to-use-a-gift-letter-for-your-mortgage/) will need to accompany the mortgage application to prove that the gift does not need to be paid back.

A range of [mortgage lenders](https://better.com/mortgage) offer FHA home loans and their eligibility requirements may differ. At Better Mortgage, for example, you’ll need a DTI ratio of 50% and a minimum credit score of 580 regardless of your down payment amount.*

## If the condo you want isn't FHA approved, you have options

While there’s no harm in asking if the condo developer or condo association can submit their condo for FHA approval, given that it can take from two weeks to over three months to get an FHA condo approval, it’s unlikely you’ll get a satisfactory result that works with your homebuying timeline.

If you know you’ll need to get an FHA home loan to buy a home, you’ll need to keep looking until you find a condo on the FHA approved condos list or consider buying a single-family home instead.
If an FHA loan does not sound right for you, you’re in luck! You may be eligible for a conventional loan with Better Mortgage. In fact, qualifying first-time homebuyers can get a conventional mortgage with a down payment as low as 3%. As an added bonus, you’ll no longer be limited to buying a condo that’s approved by the FHA. Additionally, if you’re eligible for the Fannie Mae HomeReady program, you may be able to snag a condo with a 3% down payment. However, to qualify for this program, you'll need at least a 620 credit score and income limits will apply.

In as little as 3 minutes, Better Mortgage can show you which types of loans you may qualify for, the homebuying budget you’ll have to work with, and they will match you with a loan consultant to walk you through your options to help you make the best financial decision for you and your family.

<br> <br>

 <div style="text-align: center">  
 <a class="bet-Button bet-Button--xl bet-Button--primary" href="https://better.com/preapproval/nxt-purchase?utm_source=website&utm_medium=webpage&utm_campaign=blog&utm_content=fha-condo-approval">Get started</a>  
 </div>

 <p class="legal">*Eligibility is subject to change.</p>

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Learn about FHA condo approval requirements for buyers, including eligibility rules, documentation needed, and how to find FHA-approved condominium projects.

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