Real Estate Financing 101: What you need to know before you borrow

June 26, 2026 - 19:53

Darryl Clements, President of InterCapital Funding, recently outlined the essential points that buyers and investors should grasp before they sign on the dotted line for a real estate loan. According to Clements, many people jump into financing without a clear picture of how lenders evaluate risk, which can lead to costly surprises.

One of the first things to understand is the difference between a pre-qualification and a pre-approval. A pre-qualification is a rough estimate based on what you tell a lender. A pre-approval, however, involves a lender actually checking your credit and verifying your income and assets. Sellers and agents take a pre-approval much more seriously, especially in competitive markets.

Clements also stresses the importance of your debt-to-income ratio, or DTI. This is the percentage of your monthly gross income that goes toward paying debts. Most conventional lenders want to see a DTI below 43 percent, though some programs allow higher numbers. If your DTI is too high, you may need to pay down debt or increase your down payment to qualify.

Another key factor is the type of property you are buying. Financing for a primary residence is usually easier to get than financing for an investment property or a second home. Lenders view rental properties as higher risk, so they often require larger down payments and charge higher interest rates.

Finally, Clements advises borrowers to shop around. Different lenders offer different rates, fees, and terms. Even a small difference in the interest rate can add up to thousands of dollars over the life of a loan. Taking the time to compare offers and ask questions can save money and prevent headaches later.