Real Estate Financing 101: Understanding the Basics

Buying a home is exciting, but before you start touring open houses or browsing listings, understanding the financial side of the process is key. Real estate financing isn’t just about getting a mortgage; it’s about creating a solid foundation for long-term success. Whether you're a first-time buyer or looking to invest, knowing how financing works can help you make confident, informed decisions.

Union City is a desirable and fast-moving market, with well-located neighborhoods and steady demand thanks to its Bay Area proximity. That also means buyers are often competing for the same homes, and those who come prepared, especially financially, stand out. Having your financing lined up before you even start looking ensures you’re ready to act when the right home comes along.

Before you meet with a lender, take a clear-eyed look at your finances. Your credit score, income, monthly debts, and savings all factor into how much you can borrow and at what interest rate.

Here’s what to focus on:

• Credit score: Scores of 740 and above typically earn the best interest rates, but many loan programs are available to those in the 620–739 range.
  
  
• Debt-to-income (DTI) ratio: This compares your monthly debt obligations to your gross monthly income. Most lenders prefer a DTI of 36% or less.
  
  
• Savings: In addition to your down payment, you’ll need cash for closing costs and moving expenses.

Getting clear on your budget helps you focus on homes within reach—and reduces surprises later.

Not all home loans are created equal. Choosing the right mortgage depends on your financial goals, how long you plan to stay in the home, and what kind of monthly payments you're comfortable with. Here's a quick breakdown of the main types available to Union City buyers:

These are the most common loans and are ideal for buyers with strong credit and steady income. They usually require a down payment of 5%–20% and don’t involve government backing.

Backed by the Federal Housing Administration, FHA loans are a good fit for buyers with lower credit scores or limited down payment savings. You can qualify with as little as 3.5% down.

Available to veterans and active-duty service members, these loans offer major benefits, like no down payment or private mortgage insurance (PMI), for those who qualify.

Because home prices in Union City can exceed conforming loan limits, jumbo loans may be necessary for higher-end properties. These loans typically require a larger down payment and strong credit.

In a competitive market like Union City, getting pre-approved gives you a real edge. Pre-approval means a lender has already reviewed your financials and is willing to loan you a set amount, making your offer more attractive to sellers.

A pre-approval letter can help:

• Strengthen your negotiating position
• Show sellers you’re serious
• Streamline the closing process once you’re under contract

It’s one of the smartest steps you can take before you start house hunting.

The down payment is often the biggest hurdle for buyers. While putting down 20% helps you avoid private mortgage insurance (PMI), many buyers in Union City opt for lower down payments, especially when taking advantage of FHA or conventional 3%–5% programs.

Here’s how it breaks down:

• 20%+: No PMI, lower monthly payment
• 10%–19.9%: PMI required, but good terms available
• Under 10%: Still viable with the right loan, though PMI may increase your monthly costs

If you're unsure which route is best, a local lender can walk you through the trade-offs based on your specific situation.

You’ll also need to decide between a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Each has its advantages, depending on your plans:

• Fixed-rate: Keeps your interest rate steady for the life of the loan, making it ideal if you’re planning to stay in the home long term.
  
  
• Adjustable-rate: Starts lower and adjusts after a set number of years. These can work well if you plan to sell or refinance within a few years.

In Union City’s market, many buyers favor fixed-rate mortgages for predictability, especially in times of economic uncertainty.

On top of your down payment, you’ll need to budget for closing costs—typically 2%–5% of the purchase price. That means on a $900,000 home, you could be looking at an additional $18,000–$45,000.

Closing costs often include:

• Loan origination fees
• Appraisal and inspection fees
• Title insurance and escrow services
• Property taxes and prepaid homeowner’s insurance

Some buyers ask sellers to cover part of these costs, but that depends on market conditions. It’s smart to save a little extra just in case.

Thinking of investing in Union City? The process is a little different. Lenders tend to require:

• At least 20%–25% down
• A strong credit score
• Documentation of rental income or reserves

Investment loans often come with slightly higher interest rates, but with Union City’s strong rental market, a smart purchase can yield long-term gains. For those looking to invest, it’s important to work with a local real estate agent who understands the market to ensure your investment aligns with your financial goals.

Even with financing options in place, navigating the process can be tricky. That’s where a local real estate professional makes all the difference. A Union City agent understands:

• Local lenders and first-time buyer programs
• What sellers in the area expect from financed offers
• The ins and outs of negotiating in a competitive environment

They’ll also help you coordinate with mortgage brokers, underwriters, and title companies to keep things on track from offer to closing.

Ready to take the next step toward homeownership in Union City? Whether you’re navigating loan options, seeking pre-approval, or just getting familiar with real estate financing, having an experienced local guide can make all the difference.

The Joe Schembri Real Estate Team understands the nuances of the Bay Area market and works closely with trusted lenders to help you secure the best terms possible. From your first questions to final closing, they’re here to streamline the process and help you make confident, informed decisions. Connect with The Joe Schembri Real Estate Team today to start your path to ownership.