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Financing Basics

Understand your true monthly payment, and buy with confidence in the East Bay.

Financing basics

Pre Approval

Pre-Qualification vs Pre-Approval

What’s the difference?

  • Pre-qualification = quick estimate based on info you share.

  • Pre-approval = stronger, based on verified documents and carries more weight with sellers.

For more Information please visit Consumer Financial Protection Bureau 

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In competitive areas, get pre-approved before seriously tour homes!

What Lender Look at

What lenders look at

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  • Income + employment (ability to repay)

  • Credit + history (risk profile)

  • Assets + down payment (cash to close + reserves)

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  • Avoid big new debt before closing (cars, furniture financing, big credit card balances).

  • Keep cash and paperwork organized (it speeds underwriting).

Your real monthly payment

 

You need to understand “PITI+”:

  • Calculate PITI: Principal + Interest + Property Tax + Home Owners Insurance 

  • Add HOA: Home Owners Association Fee (if applicable)

  • Add MIP: Mortgage Insurance Premium (a borrower pays MIP in real estate, it's for an FHA loan, covering an upfront fee at closing and an ongoing annual premium (paid monthly) that protects the lender, not the borrower, against default)

  • Add PMI: Private Mortgage Insurance  (If you put less than 20% down on a conventional loan, you may need PMI, which protects the lender, not the buyer).

  • Consider utilities and maintenance

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  • Plan a “homeownership buffer” A simple rule of thumb is to set aside extra each month for repairs/maintenance so surprises don’t become stress.

  • Stress-test the payment. If the monthly payment went up by a few hundred dollars (tax reassessment, insurance increases, HOA changes), would you still feel comfortable?

Expense
Mortgage

Common loan options

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Conventional

  • Popular choice for many buyers

  • PMI may apply under 20% down (and can be cancellable later in many cases). 

FHA (Federal Housing Administration Loan) 

  • Often used with lower down payments (HUD notes FHA programs can go as low as 3.5% down in many cases). 

  • Includes mortgage insurance premiums

VA (Department of Veterans Affairs Loan)

  • A VA loan is a government-backed home loan for eligible U.S. veterans, active-duty service members, and some surviving spouses, offering benefits like no down payment, no private mortgage insurance (PMI), and low closing costs, making homeownership more accessible by reducing upfront and ongoing costs.  

  • No PMI, but though there may be other VA fees.

Jumbo (common in the Bay Area)

  • For higher loan amounts

  • Usually tighter underwriting and stronger reserve requirements

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  • Get loan-smart early. Ask your loan officer to compare 2–3 programs you qualify for, including cash to close, total monthly payment, and PMI/MIP details (and how to minimize it).

Loan Estimate + Closing Disclosure

 

Loan Estimate (LE)

Closing Disclosure (CD)

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  • Check the “big 3” first: loan amount, interest rate, and monthly payment (and whether it includes taxes/insurance)

  • Your Loan Estimate is your shopping tool, your Closing Disclosure is the final version. Compare them carefully, and use your 3-day CD review period to ask questions and fix anything that doesn’t match.

Loan Estimate
Cash to close

Cash-to-close checklist

Add a tight checklist:

  • Down payment

  • Closing costs (loan + escrow/title fees + prepaid taxes/insurance)

  • Inspection/appraisal costs (if not rolled in)

  • Reserves (lenders often like to see money left over)

  • Ask your lender for a “Cash-to-Close Estimate” early. Have them show a side-by-side estimate for different loan options so you know what changes (rate, points, PMI/MIP, etc.).

  • Keep a cushion after closing. Don’t drain your savings, plan to keep reserves for moving costs, initial repairs, and surprise expenses.

  • Ask about credits and buy-downs. In some deals, you may be able to negotiate seller credits (or lender credits) to help reduce closing costs, your agent and lender can explain what’s realistic in your market.

  • Don’t forget moving/setup costs. Moving trucks, furniture, appliances, locks, internet setup, these aren’t in closing costs, but they hit right after.

All content is provided for informational and educational purposes only. No representations or warranties, express or implied, are made regarding the accuracy, completeness, reliability, or timeliness of the information. Use of this information is at your own risk. Nothing on this website constitutes legal, tax, financial, or real estate advice, nor does it create an agency relationship. For advice specific to your circumstances, please consult appropriate licensed professionals.

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