I’ve been putting purchase loans together since 2003, and most of what goes wrong in a purchase goes wrong because nobody explained it early enough. So here’s the stuff I explain to every buyer, up front.
Pre-qualified is not pre-approved
Pre-qualified means I’ve run your numbers based on what you’ve told me. Pre-approved means I have the documents to back it up: recent pay stubs, two years of W-2s or tax returns, and an asset statement showing funds to close. You’ll want to be pre-approved before you make an offer. Sellers can be apprehensive about a buyer’s ability to qualify, and a real pre-approval settles that.
When you find a property, send me the address. I’ll look up the taxes and build you a spreadsheet showing cash to close and monthly payment at a few different down payments. Then, once you and your agent settle on an offer price, I’ll issue the pre-approval letter with that address and price on it.
One more thing: if you’re talking to other lenders, insist on a soft credit pull. There’s no reason for a hard pull until you have an accepted offer.
Cash to close is three things
Contrary to popular belief, “cash to close” isn’t just your down payment. It’s three things: the down payment, the loan closing costs, and prepaid items and reserves. That last one is per diem interest plus an up-front collection for your future property taxes and homeowners insurance. Those funds go into an escrow (impound) account so your taxes and insurance get paid when they’re due and there’s a buffer in there.
Even “0% down” doesn’t mean “no cash needed.” Every purchase requires funds to close.
You don’t qualify for a rate. You qualify for a range.
People don’t qualify for one rate. They qualify for a range of rates with more or less closing cost attached to each. Lower rate, higher cost. Higher rate, lower cost or a lender credit. If you’re only shopping by rate, you’re seeing half the equation. The right choice depends on how long you expect to keep the loan, so I show you two or three options side by side with the break-even point on each, and you pick.
Mortgage insurance, and when it goes away
If you put less than 20% down on a conventional loan you’ll have Private Mortgage Insurance (PMI). Think of it as insurance for the lender. The cost depends on your down payment and credit score. It comes off once you have 20% equity, either by paying the loan down, by appreciation, or by a lump sum toward principal. You have to ask the servicer to remove it. PMI isn’t always a dealbreaker; it’s gotten cheaper, and it’s often the lesser of two evils compared with waiting years to save a bigger down payment.
Earnest money
Earnest money is the good faith deposit you put down when your offer is accepted. It’s usually held by the escrow or title company until closing. It’s not an extra cost. It’s your money, and it goes toward your purchase.
At closing, it shows up as a credit on your side of the Closing Disclosure, so it comes right off what you bring to the table. Some ball park numbers on a $400,000 purchase:
- Down payment and closing costs: $30,000
- Earnest money already deposited: $10,000
- Left to bring at closing: $20,000 (30,000 minus 10,000)
Once your deposit clears, send me a copy of the check or a bank statement showing it came out of your account. The lender will want to see where it came from. When it’s refundable depends on your contract, so your agent is the best person for that one.
Washington’s excise tax
The Washington Real Estate Excise Tax (REET) is a one-time tax on the sale of real property, collected at closing. The good news for you as the buyer: it’s the seller’s cost, not yours. Usually the seller pays this tax, but if they don’t, the buyer is responsible, which is why the title company collects it from the seller’s proceeds before the sale records. Oregon has no equivalent tax on a sale.
Gift funds
A gift from a family member is straightforward. They sign a gift letter confirming no repayment is expected, and the funds go directly to title. Lenders follow the paper trail on every dollar, so be careful moving money around before closing; every large deposit has to be explained.
The timeline
A purchase loan typically takes me two to three weeks once I have everything in hand. The rough order: inspection, then appraisal (I want the inspection done first), then underwriting, then rate lock with a few options to choose from, then clear to close. That’s lender speak for fully approved, and it’s the point where the title company prepares the documents. Then you sign, funds transfer, the deed records, and the house is yours.
During the process, please don’t finance anything new, open new credit, change jobs, or make large cash deposits without talking to me first. If it involves money and feels like a big decision, give me a quick call.