The First-Time Homebuyer's Guide to Getting a Mortgage
Updated: May 6
If you're thinking about buying your first home, congratulations! It's an exciting and important milestone in your life. You might be wondering how to get started on the mortgage process. The good news is that there are plenty of resources out there to help guide first-time homebuyers through this process. Here we'll walk through each step from beginning to end so that when it comes time to apply for a loan, everything goes smoothly:
Getting a mortgage is just one component of the home-buying process.
Buying a home is one of the biggest decisions you'll make in your life. And while getting a mortgage is an important part of that process, it's not the only thing you need to consider when purchasing a new home.
You will need to get an inspection of your potential purchase and take out insurance on it.
You will have to pay closing costs (such as title insurance).
You should also hire a real estate agent or broker who can help guide you through this process.
Understand the different types of mortgages.
Fixed-rate loans are the most common mortgages. They lock in a specific interest rate for the life of the loan, and your payments will never change.
Adjustable-rate loans (ARMs) have a lower initial interest rate than fixed-rate loans, but they are subject to changes in interest rates over time. Therefore, their monthly payments can increase or decrease over time based on changes in market conditions.
A finance charge is what you pay for borrowing money from a lender; it’s typically expressed as an annual percentage rate (APR). It includes all fees involved with getting approved and closing your mortgage loan, including origination fees and closing costs such as title searches or appraisals. You may also be charged a penalty if you pay off your mortgage before its term ends without seeking permission of your lender first; this penalty is called prepayment fee or early withdrawal charge.
Decide how much to spend on your home.
Once you've picked a neighborhood, it's time to decide how much you can afford to spend on your home. It's important to consider the following:
How much money do I want in my pocket?
How much money do I want in my savings account?
What are different types of mortgages?
When deciding how much to spend on a down payment, it may be helpful to consult with a lender or real estate agent who can help walk you through the various financing options available. A pre-qualification letter is an estimate of your monthly payments based on the amount and type of mortgage loan that would fit your budget and lifestyle. A home inspection is another good way for first-time homebuyers to make sure their future residence won't come with any surprises—or problems that require expensive fixes down the road
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Find out how much house you can afford.
Find out how much house you can afford. Before you start your search, it's crucial to get an idea of how much home you can afford. When you're in the market for a mortgage, there are two key numbers that matter: your total monthly principal and interest payment (P&I) on all debt, including your current rent or mortgage payment; and the ratio of your monthly debt payments to total income (your DTI).
Your P&I should fall below 28% of income if possible, while keeping in mind the practicalities of other costs like food, clothing, transportation and entertainment—the so-called "discretionary" expenses that one must allow for in order to maintain a comfortable lifestyle after paying bills each month. A good rule of thumb is not to spend more than 30% of gross monthly income on housing costs such as utilities and property taxes; anything beyond that will eventually eat into savings goals such as retirement accounts or emergency funds.*
Decide whether fixed-rate or adjustable-rate loans are right for you.
The first decision you'll have to make is whether to get a fixed-rate or adjustable-rate mortgage. There are pros and cons to both, but most people choose fixed-rate loans because they provide certainty about their monthly payments for the life of the loan.
Adjustable-rate mortgages are riskier—and can be more expensive—because interest rates could go up after you've purchased your home and committed yourself to making monthly payments at that higher rate. If you think interest rates will drop in the future (which isn't guaranteed), this may be worth considering.
Apply for a pre-qualification letter and get estimates on interest rates and closing costs.
If you're ready to start looking at homes, the first step is to get pre-qualified for a mortgage. A pre-qualification letter will help you determine how much money you qualify for and give sellers an idea of the amount they can expect from their sale.
In order to obtain pre-qualification, fill out a loan application with your lender and provide them with financial documents such as pay stubs or W-2s. They'll then run a credit check and let you know what interest rate they'd be able to offer based on your credit history and income level. The better your score (and higher income), the lower your interest rate will be—and vice versa.
Once you have this information, use it! Your lender's estimate should include things like closing costs—those fees that go towards processing your loan once it gets approved—so make sure they're factored into both sides of negotiations when buying or selling a home.
Research your credit score, which, if you have one, can help determine your loan options and even the price of your home.
Credit score: Your credit score is a number that represents your credit-worthiness, and it can help determine the interest rate on your mortgage. The higher your score, the better.
Credit report: All lenders pull your credit report when evaluating you for a loan. This is based on information in one or more of the three major nationwide consumer reporting companies (Equifax, Experian and TransUnion). They're all free to request a copy of yours once every 12 months from AnnualCreditReport.com, but if you have questions about any items on it—or want to dispute them—you should contact each company directly and ask them to investigate the issue(s).
Get a home inspection before you close on your loan.
The process of buying a home is exciting, but it can also be daunting. There are many things to consider and prepare for before you make an offer on your dream house. One important step is to get a professional inspection of the property that will be inspected in detail by a licensed inspector.
An inspection will reveal issues with the structure of the home as well as any potential problems with its systems or mechanicals. A thorough inspection will help you understand what needs to be repaired or replaced, so that you know exactly what work needs to be done before closing on your loan. This can give you time to find contractors who can perform this work at an affordable price without rushing through the process and potentially losing money due to poor craftsmanship or shoddy materials used during repairs or renovations.
A good understanding of the mortgage process will help make sure that all goes smoothly when it comes time to buy your first home!
To help you better understand the mortgage process, we'll take a look at some of the most important steps in getting a mortgage.
You should know what you are getting into before applying for a mortgage. Do your research and make sure that you understand what type of loan program fits your budget and lifestyle.
You will need to get pre-qualified for a loan before going house hunting. Your real estate agent or lender can help with this step in the process.
There are many different types of mortgages available, so choose one that works best for your situation and goals!
The mortgage process can be long and complicated, but if you’re prepared with the right information and resources, it will only take a few weeks. If you have any questions along the way, don’t hesitate to reach out. We’re happy to help!