Buying a home is unlike buying anything else in your life – no one needs an agent to buy a taco or stacks of paperwork to agree over exactly how a pair of pants was made before they buy them. Tacos and pants also don’t cost most of your savings and tie up your money into a hard asset. That’s why it’s so important to know that there’s not just one type of loan available to buyers when you’re ready to buy a home. So, how do you start?

That’s why it’s so important to know that there’s not just one type of loan available to buyers when you’re ready to buy a home.

Get Pre-Approved

First, get pre-approved. When it’s time to get serious about buying, the first step is to talk to a lender. They’ll ask you to provide lots of background on your current financial situation, including tax returns, bank statements, and employment verification. Lenders will always check that you’ve filed your taxes and that you’ve got steady employment or income. Many people in DC are contractors and not considered “employees” – don’t worry, there are options for you that great lenders can walk you through.

While lenders will use their own informal methods to get some credit background information, they won’t necessarily do a hard credit pull until it’s time to get your loan together. You’ll also have a better idea of the interest rate you will be charged on the loan and, in some cases, you might be able to lock in a specific rate.

It’s important to choose a reputable lender that is well-known for their accuracy and quick turn-around time. Not all lenders are created equal, so ask your agent for recommendations (no, we do not get kick-backs!) on lenders whom they frequently work with and rely on to get pre-approvals in as little as a day or two; this speediness is critical when you’ve got a deadline on an offer for your dream home.

Tip: This is a bit different from getting pre-qualified, which is a term for the first informal step where you get initially screened by a lender. This step is useful to get you a ballpark estimate of what you can afford; good lenders are typically more accurate, but a pre-qualification won’t be taken seriously when it’s time to put in an offer.

With pre-approval, you will receive a conditional commitment in writing for an exact loan amount, allowing you to buy a home at or below that price level.

Choose Your Loan (or Cash!)

Well, it’s not that easy; there’s really no check box on the receipt indicating how you’d like to pay for your home that day. But you likely have more options than you think. A great agent and a reputable lender will both help you work out which is the best strategy for you to keep your finances safe and still make an attractive offer to the seller. Emotions run high. Don’t work with either an agent or a lender that allows you to make risky decisions with your money. You can’t take back a mortgage. (Come to think of it, it would be hard to take back the taco once you’ve eaten it, too.)

Now, most of us have heard of popular terms like “conventional loan” and “down payment” but it all swirls around in a jumble of words that mean “spend lots of money.” So let’s break it down to the four major ways to pay for your home:

Conventional Loans

* What’s a good credit score? Many consider somewhere around 700-750 to be considered Good to Very Good. Anything above that is often considered Very Good to Excellent. I’m not a lender and different lenders consider different scores “Good” so make sure you connect with them. If you’re worried, you should absolutely talk to Maggie for tips on how to improve your credit score!

** What’s a solid debt-to-income ratio? It’s all your monthly debt payments divided by your gross monthly income. Your gross monthly income is the total amount of money you have earned before your taxes and other deductions are taken out. This number is a critical way lenders measure your ability to manage your mortgage payments and other debts. (Really, it’s time to talk to Maggie if this is also a concern for you.)

FHA Loans

*** What’s mortgage insurance? Your Up Front Monthly Insurance Premium could be 1.75% of your total loan amount, but the FHA will include it on top of your loan. That means you’re not paying that separately; it’ll just be added to your total loan and you’ll pay it over time in your mortgage. Your Monthly Insurance Premium is likely smaller and could be 0.85% (less than 1%) and is also included in your mortgage payment.

VA Loans

Cash

The loan isn’t the only thing you’re going to pay during the deal. There are also closing costs (fees to the lender, etc.) that can be anywhere from 3-5%. This doesn’t count for the case of wine you’ll likely buy as you go through this process. But it doesn’t have to be this stressful. Find yourself a crack team: the agent, the lender, the title company, and the home inspector. These people should be at the top of their game and have your interests in mind. They should try to protect you and teach you at every step. If you don’t have that now, talk to me! I’ll get you in the right spot.