How Financing a Real Estate Transaction Works



When you start the exciting journey of purchasing a home here in Seattle, Tacoma or Gig Harbor Washington, understanding the financing process is crucial. Whether you're a first-time buyer or a seasoned investor, knowing how different loan types work — and what happens behind the scenes during underwriting and appraisal — can make a major difference in your confidence and success. Let’s break it down:

Loan Types: FHA, Conventional, and VA Loans

FHA Loans: Backed by the Federal Housing Administration, FHA loans are a popular choice for first-time homebuyers. They typically require lower down payments (as low as 3.5%) and have more flexible credit score requirements. However, they come with mandatory mortgage insurance premiums (MIP), which add to your monthly payment.

Conventional Loans: These are not government-backed and often require higher credit scores and down payments (usually 5–20%). The big advantage? If you put down at least 20%, you can avoid paying Private Mortgage Insurance (PMI) altogether. Conventional loans also offer a wide range of options, including fixed and adjustable-rate mortgages.

VA Loans: Reserved for eligible veterans, active-duty service members, and some military spouses, VA loans are backed by the Department of Veterans Affairs. They offer incredible benefits, such as zero down payment requirements and no PMI. Plus, they often have lower interest rates compared to conventional loans. If you're active with Joint Base Lewis-McChord (JBLM), you'll definitely find incredible value in your VA benefit. 

The Role of Appraisal and Underwriting

Once your offer on a home is accepted and you apply for a mortgage, two key steps happen: appraisal and underwriting.

Appraisal: Your lender will order an appraisal to ensure the home’s value aligns with the purchase price. This protects both you and the lender — you don’t want to overpay, and they don’t want to lend more than the home is worth. If the appraisal comes in lower than expected, it could impact your financing terms or require renegotiations with the seller.

Underwriting: After the appraisal, your loan moves to underwriting. This is the critical stage where the lender verifies your income, debts, assets, employment history, and overall financial health. The underwriter assesses your risk level and ensures that you meet the loan guidelines. They may ask for additional documents or clarification, so quick and accurate responses are important to keep the process moving.

What Does "Buying Down a Rate" Mean?

When you hear about “buying down a rate,” it refers to paying discount points upfront to lower your mortgage interest rate. Essentially, you’re pre-paying some interest to secure a lower monthly mortgage payment. One point typically equals 1% of your loan amount.

For example, if you’re borrowing $300,000, one point would cost $3,000. In return, you might lower your rate by 0.25%, which can save you tens of thousands of dollars over the life of your loan. Buying down your rate can be a smart strategy if you plan to stay in the home for a long time and want to maximize your savings.

Ready to Explore Your Financing Options?

Financing a real estate transaction doesn’t have to be complicated when you have the right real estate expert on your side. Whether you're considering FHA, Conventional, or VA financing, or you just want to better understand your appraisal and underwriting steps, I'm here to guide you every step of the way with great lender partnerships and solid advice on how to enter the market. 

Call or text me today Erik Molzen Realtor at (206) 643-8845 to start your real estate journey with confidence! If you need a great lender referral, I have excellent resources. 


#realestate, #homebuying, #mortgage, #fhaloans, #valoan, #conventionalloan, #tacomarealestate, #seattlerealestate, #gigharborrealestate, #puyalluphomes, #federalwayhomes, #mortgagetips, #homeappraisal, #underwritingprocess, #buyingdownrates, #mortgagerates, #firsttimehomebuyer, #homeloans, #homefinancing, #erikmolzenrealestate

Location: Seattle, WA, USA

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