From pre-approval to closing — understand every step, every number, and every option available to you.
A pre-approval is a written commitment from a lender stating how much they are willing to lend you, based on a review of your credit, income, and assets. It is not a guarantee of final loan approval, but it is the most important first step in the home buying process.
Sellers take pre-approved buyers more seriously. In competitive markets, many listing agents will not show a home without one. Getting pre-approved before you start shopping puts you in the strongest negotiating position.
What you'll need for pre-approval
Pre-qualification vs Pre-approval
Pre-qualification is a quick estimate based on self-reported information — no credit pull, no document review. Pre-approval is a verified review. Always get pre-approved before making offers.
Tony AI
Tony will walk you through your scenario and show estimated options — no commitment, no credit pull.
Start my personalized rate in 60 secondsThe down payment is the portion of the purchase price you pay upfront. The rest is financed through your loan. Your down payment amount affects your loan program eligibility, interest rate, and whether you'll pay PMI (private mortgage insurance).
| Loan Type | Min. Down Payment | PMI Required? | Notes |
|---|---|---|---|
| Conventional | 3%–5% | Yes (until 20% equity) | Best rates with 20%+ down |
| FHA | 3.5% (580+ credit) | Yes (MIP, life of loan) | 10% down if credit 500–579 |
| VA | 0% | No | Veterans and active duty only |
| USDA | 0% | No (guarantee fee) | Rural/suburban areas only |
| Jumbo | 10%–20% | Varies | Loan amounts above conforming limit |
Gift funds are allowed
Most loan programs allow down payment funds to come from a family member as a gift. You'll need a gift letter and documentation showing the transfer. Ask your loan advisor about the specific requirements for your program.
FHA and Conventional loans are the two most common loan types for home purchases. The right choice depends on your credit score, down payment, and long-term goals.
FHA Loan
Conventional Loan
Example scenario
A buyer with a 640 credit score and 5% down will typically get a better rate and lower total cost with an FHA loan than a Conventional loan. A buyer with a 760 credit score and 10% down will almost always be better served by a Conventional loan — no lifetime MIP and lower overall cost.
Tony AI
Tony will walk you through your scenario and show estimated options — no commitment, no credit pull.
Start my personalized rate in 60 secondsFirst-time buyer programs offer down payment assistance, reduced rates, and closing cost credits. Many programs define "first-time buyer" as anyone who has not owned a primary residence in the past 3 years — so you may qualify even if you've owned before.
Fannie Mae HomeReady
3% down, reduced PMI rates, income from household members can be counted. Ideal for buyers in low-to-moderate income areas.
Freddie Mac Home Possible
3% down, flexible income sources, reduced MI rates. Similar to HomeReady with slightly different eligibility rules.
FHA 203(b)
3.5% down, government-backed, flexible credit guidelines. The most widely used first-time buyer program.
State & Local DPA Programs
Down payment assistance (DPA) grants and second liens that cover 3%–5% of the purchase price. Availability varies by state and county.
Affordability is determined by three factors: your income, your existing monthly debt obligations, and your down payment. Lenders use a metric called DTI (debt-to-income ratio) to measure how much of your gross monthly income goes toward debt payments.
The 28/36 Rule (General Guideline)
28%
Max housing expense (PITI) as a percentage of gross monthly income
36%
Max total debt (housing + all other debt) as a percentage of gross monthly income
Example
Gross monthly income: $8,000 → Max housing payment: $2,240 (28%) → Max total debt: $2,880 (36%). If you have $600/month in car payments and student loans, your max housing payment drops to $2,280.
Conventional loans typically allow DTI up to 45–50%. FHA allows up to 57% with compensating factors. VA has no hard DTI cap but uses residual income as the primary qualifier. Use our Affordability Calculator to run your numbers.
Tony AI
Tony will walk you through your scenario and show estimated options — no commitment, no credit pull.
Start my personalized rate in 60 seconds