Financing

How mortgages actually work, what lenders are looking at, and why the number you’re approved for isn’t the number you should spend.

I’m a REALTOR®, not a lender — I don’t originate loans and I don’t get paid by anyone who does. What follows is how this works in practice, so that the conversation you have with a lender is one where you understand the terms. For advice about your specific situation, a good local lender is the right person, and I’m happy to suggest a few.

Approved is not the same as affordable

A lender approves you for what their formula says you can pay. That calculation knows your income and your recorded debts. It doesn’t know you want to keep travelling, that your car is on borrowed time, that you’d like to still be putting money away, or that you have any life outside the mortgage.

That’s not a trap and lenders aren’t villains. It’s just that their question is “what can this person repay” and yours should be “what do I want to still have afterward.” Those produce different numbers.

Decide your number before someone hands you a bigger one. It’s much harder to walk back afterward.

What’s actually in a monthly payment

People calculate principal and interest, see a manageable figure, and then get surprised. The full payment usually includes:

• Principal — paying down what you borrowed.
• Interest — the cost of borrowing it. Early on, most of your payment is this.
• Taxes — property taxes, usually collected monthly and held in escrow.
• Insurance — homeowner’s, same arrangement.
• Mortgage insurance — if you’re putting down less than twenty percent on most loan types.
• HOA dues — where they apply. Not in your mortgage, but in your monthly cost.

Ask any lender for the full figure rather than principal and interest. The gap between the two is frequently several hundred dollars.

Loan types, in plain language

Conventional

The standard product, not government-backed. Down payments start lower than most people assume — as little as three percent for qualified buyers. Generally wants stronger credit than the government-backed options. Under twenty percent down you’ll pay private mortgage insurance, which can usually be removed once you’ve built enough equity. That last part matters and often goes unmentioned.

FHA

Government-insured, more forgiving on credit, and low down payment. The trade is mortgage insurance that on current terms typically stays for the life of the loan rather than dropping off — so it’s often the right entry point and worth revisiting through refinancing later. There are also property condition standards, which can matter on older housing stock.

VA

For eligible veterans, service members, and some surviving spouses. Frequently no down payment, no ongoing mortgage insurance, and competitive rates. If you’re eligible this is usually the strongest option available, and it’s underused — partly because a persistent myth says sellers dislike VA offers. Structured properly, they compete fine.

USDA

For properties in designated rural areas, with income limits. Often no down payment. The thing worth knowing here: considerably more of this region qualifies than people assume, including places that don’t feel rural at all. Check the map for any address you’re serious about — it’s a genuine advantage that plenty of buyers never look into.

What lenders look at

Roughly in order of weight:

1. Credit history. The score matters, and so does what’s behind it — recent late payments weigh more than old ones.
2. Debt-to-income ratio. Your monthly obligations against gross monthly income. This is often the binding constraint rather than the score.
3. Income stability. Not just how much, but how consistent and how documented. Self-employment isn’t a problem, it’s just more paperwork.
4. Assets. Your down payment, closing costs, and reserves — and where the money came from. Large recent deposits need explaining.
5. The property. It’s collateral, so its condition and appraised value are part of the decision.

Debt-to-income is where people are most often surprised. A car payment can reduce your buying power by considerably more than the payment itself suggests.

Rates, points, and locks

The rate you’re quoted isn’t the whole cost. Compare the APR, which folds in fees, and ask for a written loan estimate from each lender you’re considering. They’re standardised specifically so you can lay them side by side.

Points are prepaid interest — money up front for a lower rate. Whether that’s worth it depends entirely on how long you keep the loan. There’s a break-even point, and any lender can calculate it for you. Ask.

A rate lock holds your quoted rate for a set period while you close. Ask how long the lock runs, what it costs to extend, and what happens if your closing slips — which happens routinely.

Shop more than one lender. Rates and fees vary more than most buyers expect. Multiple mortgage inquiries inside a short window count as a single event for credit-scoring purposes, so this doesn’t damage your score the way people fear.

Local lender or online

Online lenders often quote better on paper and that’s a real advantage. What a local lender brings is someone who answers the phone when something goes wrong at day thirty-eight, and who understands the housing stock here — an appraisal on a 1920s house isn’t the same exercise as one on a subdivision build.

On a competitive offer, a local pre-approval a listing agent recognises carries weight. That’s not fair to online lenders and it’s true.

My honest suggestion: get quotes from both, and weigh the difference against what a delayed closing would cost you.

If your credit isn’t where you want it

This is more fixable than most people think, and often on a shorter timeline.

• Pull your reports and check them. Errors are common and disputing them is free.
• Reduce card balances relative to limits. Utilisation moves scores faster than almost anything else.
• Don’t close old accounts. Length of history counts, and closing a card can raise your utilisation.
• Make every payment on time. Unglamorous and the single largest factor.
• Talk to a lender now anyway. Many will tell you exactly what to move and by how much. That’s a free roadmap, and some buyers find they already qualify.

Be wary of anyone charging a fee to repair your credit. Almost everything they do, you can do yourself.

Questions to ask any lender

• What’s my full monthly payment including taxes, insurance, and mortgage insurance?
• What’s the APR, not just the rate?
• Which loan types do I qualify for, and what does each cost over five years?
• Can the mortgage insurance be removed later, and when?
• How long is the rate lock and what does an extension cost?
• Do you originate Virginia Housing loans?
• Who actually services this loan after closing?
• What would make this fall apart, and what should I avoid doing?