There are exactly five things that determine whether you can buy a home and what it will cost you. If you miss any one of them, you may find yourself unable to move forward even after you have found the right house. I am Patrick Kevin Fagan, and in over 23 years of loan origination, I have seen buyers lose deals simply because they did not know what to prepare before they started. This guide walks you through each of those five essentials so you walk into the process informed, organized, and ready to close. If you are wondering where to start when buying your first home, my Ask Patrick guide has you covered.
Watch Patrick explain these 5 essentials on his YouTube channel.
Watch The Mortgage Patriot on YouTubeThing 1: Credit Scores — It Is Not Just the Number
Most buyers check Credit Karma or a similar free service and assume the score they see is the score the lender will use. In reality, free services tend to overshoot because they do not use the same algorithms as the three main credit bureaus: TransUnion, Equifax, and Experian. Your actual mortgage scores may be lower than what those apps show you. That gap matters because your credit score determines both eligibility and your interest rate.
But your score is only part of the picture. The underwriter also looks at your credit history for specific issues that can stop a deal cold, regardless of your score.
What the Underwriter Checks Beyond the Number
- Collection items: For FHA loans, the threshold is strict: no more than $2,000 aggregate in collection and charge-off amounts. Even with a 700 credit score, if you have three collections totaling $2,700, FHA will not approve the loan. You must negotiate those collections down below the $2,000 aggregate before you apply.
- Late payments: For FHA, maximum one 30-day late in the last 12 months and no more than two 30-day lates over the prior 24 months. Multiple late payments across different trade lines can disqualify you even with good credit scores.
- Charge-offs you thought were handled: It is common to discover old charge-offs you believed were resolved. I always run a soft pull review first so we can identify and address these months ahead of time rather than discovering them during underwriting.
Patrick's advice: A soft pull credit review does not hurt your score one point and does not trigger marketing calls. A hard pull triggers dozens of calls and texts from companies that buy your lead data. Always ask your loan officer to start with a soft pull so you can identify issues and create a plan without any negative side effects.
Thing 2: Assets — What Actually Counts
Having cash is not the same as having documented, qualifying assets. Lenders follow strict rules about what counts as an acceptable source of funds for your down payment and closing costs. Here is what I see buyers get wrong most often.
Cash at Home Does Not Count ("Mattress Money")
If you have been saving cash in a safe or under the mattress, that money cannot be used for a home purchase. Underwriters do not count cash held at home toward your funds. It must be seasoned in a bank account for at least 60 days. If we cannot see a paper trail, we cannot use it, plain and simple.
Your 401K Can Count, but Not at Full Value and Only for Reserves
Lenders typically count only 40% to 50% of your 401K balance because of the penalties and taxes you would pay if you withdrew it. And here is something many buyers do not realize: 401K assets only count toward reserves, not toward your cash-to-close. They can help show the underwriter you have money left after closing, but they do not fund your down payment or closing costs. Additionally, employer distribution rules matter. If your plan restricts when or how you can access the funds, those limitations affect what the lender can count. I walk my clients through these numbers so they know exactly how much of their retirement savings the lender will recognize and where that value can be applied.
Gift Funds Must Be Documented
Gift funds from family are allowed on most loan programs, but they require a formal gift letter and a paper trail showing the money moved from the donor's account to yours. Cash handed over in an envelope does not qualify, no matter who it comes from.
Quick reference on asset seasoning: Bank statements are typically required for the most recent 60 days. Large deposits must be sourced. If you plan to use cash savings, deposit them into your bank account at least 60 days before you apply to establish a clean paper trail.
Thing 3: Income — How Lenders Evaluate What You Earn
Not all income is treated the same way. The type of income you earn determines how the lender calculates your qualifying income, and that calculation directly affects how much home you can afford.
Hourly vs. Salary Income
- Salary: Your current salary is credited immediately with no 2-year averaging. If you start a new salaried job tomorrow, the lender uses that income right away.
- Hourly wages: Hourly workers must average income over the full 24-month period. If you made $60K last year and are tracking $80K this year, you only get credit for $70K. Lenders do not just take your current rate. They look at the average of the last two full years.
- Overtime and commissions: Both follow the same 2-year averaging rule. If you have been earning overtime for several years, the lender uses the average. If overtime is new, it cannot be used at all.
I have worked with buyers who just started an hourly job and assumed they could not qualify. In many cases, there is a path forward, but it requires structuring the loan application correctly so the underwriter sees the full picture. If your income situation is not a straightforward W-2 salary, let us talk about it before you start shopping.
Thing 4: Your Estimated Monthly Payment — Five Components
Your monthly mortgage payment is not just principal and interest. It is made up of five separate components, and each one affects your total housing cost. Here is how they break down.
Principal & Interest
The loan payment itself. Principal reduces your balance; interest is the cost of borrowing.
Property Taxes
Paid into an escrow account monthly, then disbursed to the county when taxes are due. Texas property taxes vary by county but are generally higher than the national average.
Homeowners Insurance
Required by your lender. The annual premium is divided into monthly payments held in escrow. Texas homeowners insurance can vary significantly by location and coverage level.
Private Mortgage Insurance (PMI)
Required on conventional loans when your down payment is less than 20%. FHA loans have a similar cost called Mortgage Insurance Premium (MIP), which stays for the life of the loan if you put less than 10% down.
HOA Dues
If the property is in a homeowners association, the monthly or quarterly HOA fee is included in your total housing payment calculation. HOA fees in San Antonio-area communities range widely depending on the neighborhood and amenities.
Many buyers focus only on the principal and interest payment, only to discover at closing that taxes, insurance, PMI, and HOA fees add hundreds of dollars to their monthly obligation. Know the full number before you start shopping.
Thing 5: Your Cash-to-Close Number
The cash you need at closing is not just your down payment. It is the combination of three separate buckets. I walk every client through these three buckets so there are no surprises on signing day.
Bucket 1: Down Payment
On a $300,000 home with an FHA loan at 3.5% down, that is $10,500. For a conventional loan at 5% down, it would be $15,000. And for a VA loan, it could be zero. Your down payment percentage depends on your loan program and your goals.
Bucket 2: Transaction Costs (Closing Costs)
This includes processing, underwriting, title fees, government recording fees, appraisal fees, credit report fees, and more. In Texas, these typically run around $5,500 to $6,000 on a $300,000 purchase. Seller concessions and down payment assistance programs can reduce what you pay out of pocket here.
Bucket 3: Prepaids and Escrows
You must prepay homeowners insurance and fund your escrow account with property taxes and insurance. For a typical Texas transaction on a $300,000 home, this bucket runs about $2,400. When you add all three buckets together, the total comes to roughly $18,500 to $19,000. With seller concessions and down payment assistance programs, that number can be reduced to under $10,000.
Example: Cash-to-Close on a $300,000 Home (FHA 3.5% Down)
With seller concessions and down payment assistance programs, this total can drop to under $10,000. I provide every client with both a with-help and without-help scenario so they understand the range.
Patrick's Take: Know Before You Shop
I have seen too many buyers fall in love with a home they thought they could afford, only to discover during the loan process that one of these five things was not in order. A pre-approval is not just a letter. It is a strategy session where we identify all five elements and build a plan for each one.
When I pre-approve a client, I do a soft pull review of their credit, calculate their qualifying income based on their specific income type, estimate their full cash-to-close including all three buckets, and explore down payment assistance programs. I give them an upper-bound estimate without any help and a realistic number with seller concessions and down payment assistance applied.
The goal is simple: know your numbers before you walk into a single open house. Buyers who understand these five things win because they make informed decisions, not emotional ones.
Quick Reference: Credit Score Minimums by Loan Type
Use this as a general guide. Each loan program has additional requirements beyond the score.
These are general guidelines. Your loan officer can discuss your specific situation and which program best fits your goals.
Frequently Asked Questions
Can I buy a house with little money down?
What credit score do I need for an FHA loan?
How do I know how much cash I will need at closing?
Is now a good time to buy a home in San Antonio?
Continue Your Education
Explore more resources from Patrick to deepen your home buying knowledge.
Ready to Check These Five Things Off Your List?
Every buyer starts somewhere, and most are not fully ready when they first reach out. That is normal. I will go through each of these five essentials with you, run a soft credit review, estimate your full cash-to-close, and help you build a plan to get ready. Whether you are looking in San Antonio, Bulverde, or anywhere across the Texas Hill Country, let us start with a conversation.
Patrick Kevin Fagan
Loan Officer and Realtor · AXEN Realty LLC · San Antonio and Texas Hill Country
Licensed Sales Agent · 454749 · TX
Sincerely, Patrick Kevin Fagan