Home Buyer Questions, Answered

Preapproval and Budgeting

What Is a Mortgage Preapproval?

A preapproval is a lender’s conditional assessment of how much you may qualify to borrow after reviewing your finances. You don’t need to have chosen a home. We can help you build a comfortable budget and use it to establish a price range before you shop. Final approval depends on underwriting and the property.

What Is the Difference Between a Preapproval and a Prequalification?

A prequalification is usually an early estimate of what you might qualify to borrow, based on information you provide about your income, debts, savings, and credit. Supporting documents may not have been reviewed.

A preapproval typically involves a closer review of your credit and financial documents. It can give you a more reliable price range and help strengthen an offer.

Lenders use these terms differently, so ask what has actually been reviewed. Neither is final loan approval. You don’t need to have a home picked out to begin either process.

What Is My Debt-to-Income Ratio?

Your debt-to-income ratio, or DTI, compares your qualifying monthly debt payments with your gross qualifying income before taxes. It includes your proposed housing payment and obligations such as car loans, student loans, and credit cards. Lenders use it to help evaluate your ability to repay.

Should I Wait Until I Have Everything Saved?

No, you can start planning before you’re ready to buy. We can help you estimate a savings target, build a comfortable budget, and identify what to work on next. Starting early gives you time to prepare without the pressure of a pending offer.

Does a Preapproval Letter Expire?

Technically, yes. A letter may be written for 90 days, but the expiration period varies by lender, so check the date on yours. It can usually be updated after a review of your current information.

Changes in employment, income, savings, debts, credit, or interest rates can affect the terms of your preapproval, even before the letter expires. Stay in touch with your lender as you shop so your price range, estimated payment, and cash needs remain current.

What Happens During Underwriting?

Underwriting is the lender’s review of your income, employment, credit, assets, debts, and property information. The underwriter checks whether the loan meets requirements and may request additional documents or explanations before approval.

Can I Qualify with Limited Credit History?

Possibly. Credit-scoring changes introduced for conventional mortgages in 2026 include VantageScore 4.0, which can score some people with limited credit histories who may not receive a score under older models. Availability depends on the lender and loan program. Income, debts, savings, and the property still affect qualification.

Some programs also allow documented payments such as rent, utilities, or insurance to help establish creditworthiness.

Sources: FHFA credit score updates and VantageScore mortgage FAQs.

Does Keeping My Current Home as a Rental Affect My Next Mortgage?

Yes. Your existing mortgage payment, potential rental income, and available savings can affect qualification for your next home. Jay and Alex can model selling versus keeping the home as a rental, helping you compare estimated payments, cash available for the next purchase, and how each option could affect mortgage qualification.

Down Payments and Upfront Costs

What Are Closing Costs and Prepaids?

Closing costs are the charges associated with getting your mortgage and completing the purchase. They can include lender fees, appraisal, title insurance, escrow services, and recording fees.

Prepaids and initial escrow deposits cover items such as homeowners insurance, interest from closing until the end of the month, and funds set aside for future property tax and insurance bills. These are different from fees for arranging the loan, but they still affect the cash needed at closing.

Closing costs and prepaids may be paid by the seller through a negotiated seller credit, subject to your loan program’s limits and eligible costs. This must be agreed to as part of the purchase terms. We can help you review both categories alongside your down payment so you have a clearer picture of the total.

How Much Savings Do I Need?

Your down payment is often the largest part, but you also need a plan for closing costs and prepaids. Seller credits, lender credits, or eligible assistance may cover some or all of those costs, subject to program limits. On a purchase, they generally can’t simply be added to your first mortgage. Lender credits may involve a higher interest rate.

You may also need funds for inspections and an appraisal before closing. Allow room for moving, initial repairs, and savings afterward; some loans require reserves. We can help you estimate what you’ll need based on your loan options and any available credits or assistance.

Where Can My Down Payment Come From?

Your down payment can come from several sources, depending on the loan program:

• Your savings: funds in checking or savings accounts. You may also be able to withdraw from a retirement account or borrow against an eligible plan, such as a 401(k), if the plan allows it. Review any taxes, penalties, repayment terms, and impact on your retirement savings before deciding.
• A family gift: eligible gift funds from a family member, with documentation confirming that repayment is not expected.
• Down payment assistance: an eligible program may help cover your down payment and sometimes closing costs, subject to its requirements.
• Your employer: some employers offer home buyer assistance through a grant or loan. Ask whether this benefit is available and review the terms.

The seller cannot pay your required down payment. Seller credits may help with eligible closing costs and prepaids, but those are separate from the down payment. We can help you compare these options and confirm what documentation your loan program requires.

What Is a Down Payment?

Your down payment is the portion of the purchase price covered without your first mortgage. It can come from eligible savings, family gifts, or assistance. It is separate from closing costs and prepaids.

What Is an Earnest Money Deposit, and How Does It Fit In?

It is money deposited after an accepted offer to show your commitment to the purchase. It generally counts toward the money needed at closing. Its deadline and refund rights depend on your contract.

If a family member provides eligible gift funds or you use down payment assistance, some or all of the earnest money you paid may be returned at closing once required costs are covered. Your lender and escrow must confirm that the refund meets loan and assistance program rules, required borrower contributions, and documentation requirements.

What Does Cash to Close Mean?

Cash to close is the remaining money you need to complete the purchase. It accounts for your down payment, closing costs, prepaids, and other adjustments, minus your deposit and applicable credits. Your deposit should not be counted twice.

What Are Seller Credits, and What Can They Pay For?

Seller credits are contributions the seller agrees to make toward eligible closing costs and prepaids. They can reduce the cash you need at closing, but cannot cover your required down payment. Limits depend on your loan program and transaction.

Can Down Payment Assistance Cover Closing Costs?

Yes, it’s possible. Some programs can help with eligible closing costs as well as the down payment. Availability, eligibility, and repayment terms vary, and assistance may not cover every expense. Jay and Alex can help compare these options, including the cash needed at closing and the overall cost of the mortgage.

Loan Options and Borrowing Costs

What Is Mortgage Insurance, and Who Does It Protect?

Mortgage insurance protects the lender if you don’t repay the loan. It can make financing available with a smaller down payment. Conventional private mortgage insurance, or PMI, and FHA mortgage insurance have different costs and removal rules.

What Is APR, and Why Is It Different from My Interest Rate?

APR stands for Annual Percentage Rate. Your interest rate determines the interest charged on your mortgage balance. APR expresses a broader cost of borrowing as an annual percentage because it includes the interest rate and certain loan charges, such as discount points and some lender fees. That is why APR is often higher than the interest rate. It does not include every expense, such as property taxes and homeowners insurance.

What Are Discount Points, and Should I Pay Them?

Discount points are an upfront charge paid in exchange for a lower interest rate. One point equals 1% of your loan amount, but the rate reduction varies. Whether paying points makes sense depends on the upfront cost, monthly savings, and how long you expect to keep the loan.

What Does It Mean to Lock My Interest Rate?

A rate lock holds an interest rate for an agreed period, subject to its terms. Your loan generally needs to close within that period. A preapproval letter alone does not mean your rate is locked.

What Is a Loan Estimate?

A Loan Estimate is a standardized form showing proposed loan terms, estimated payments, and estimated costs. It helps you compare mortgage offers using the same format. Some figures may change as the loan moves toward closing.

Do I Have to Be a First-Time Buyer?

No. Many mortgage programs are available to repeat buyers. Some low-down-payment and assistance programs require first-time buyer status, often defined as not having owned a primary residence during the previous three years. Definitions and exceptions vary by program.

How Should I Compare Mortgage Offers?

Compare the monthly payment and cash needed at closing, then look closely at what creates those numbers. Interest rates, points, lender fees, and loan terms all matter. Compare Loan Estimates using consistent assumptions and distinguish lender charges from estimated taxes, insurance, and other third-party costs.

Also consider your flexibility if rates fall. Some loans offer streamlined refinance paths for eligible borrowers, while others may involve different requirements or costs. Review any prepayment penalties and whether down payment assistance would need to be repaid or approved to remain in place. Future refinancing depends on eligibility and market conditions, so the original loan should make sense on its own.

Escrow and Closing

What Does Escrow Mean?

During a purchase, escrow is the process in which a neutral party holds funds and documents while closing requirements are completed. After closing, a mortgage escrow account, also called an impound account, may collect money with your payment to cover property taxes and insurance.

What Is an Appraisal, and Is It the Same as an Inspection?

An appraisal focuses on determining the home’s value. An inspection evaluates its condition and helps identify repairs or maintenance concerns. An appraisal may note property issues, but it does not replace a home inspection.

What Is a Contingency in a Purchase Contract?

A contingency provides protection tied to a condition, such as obtaining financing, an acceptable appraisal, or satisfactory inspections. Discuss its deadline and your options with your real estate agent and lender before removing it.

If I Make an Offer or Sign a Purchase Contract, Am I Obligated to Buy the Home?

Not automatically. Making an offer does not mean you have purchased the home. Once the offer is accepted, however, the contract creates obligations for both you and the seller.

The contract describes the home you are agreeing to buy and the terms of the purchase. It can also include protections called contingencies, giving you time to inspect the home, review disclosures, confirm financing, and evaluate the appraisal.

If a condition covered by an active contingency is not satisfied, you may be able to cancel and have your deposit returned, provided you follow the contract’s requirements and deadlines.

Before signing or removing a contingency, review it carefully with your real estate agent and lender. These protections matter, but they do not give you an unlimited right to cancel. Canceling outside the contract’s protections could put your deposit at risk or have other consequences.

What Is a Closing Disclosure?

A Closing Disclosure shows your final loan terms, payment information, closing costs, and cash to close. Compare it with your Loan Estimate and ask about differences before signing.

What Does Recording Mean, and When Do I Get the Keys?

Recording means the county enters the deed and other documents into its public records. In a typical California purchase, escrow confirms closing after recording. You usually receive keys then, unless your contract provides for later possession or a seller rent-back.