Getting Your First Mortgage: An Insider's Guide
Your first mortgage can make or break your ability to afford a new home. Your house will likely cost you about 30% of your yearly expenses, so it’s an important purchase that requires significant research and consideration.
Qualifying for your first mortgage depends on several factors like your credit, income, assets, and employment status.
The process can be time-consuming, sifting through paperwork and loan options, but it’s well-worth your effort for the outcome of owning a home.
Find Out What You Can Afford
Your credit and income are probably the two most important factors in determining the price of a home your first mortgage will cover.
Keep in mind that most loans will only finance 95% of your home, so you’ll be responsible for the other 5% for a down payment. Additionally, you need to consider added costs, like property taxes and private mortgage insurance (PMI), if your down payment will be less than 20%.
Find out your credit score and piece together all your income and assets to get a general picture of your finances. Use a home affordability calculator to determine a good budget.
Check out our comprehensive condo financing guide for more information on this process.
Pay Off Debts and Save for Extras
If you have debts, it’s important to pay off as much as you can before you seek your first mortgage.
Debt has a way of making its presence well-known in your mortgage application process. The less you have, the better your chances of approval.
In addition to clearing your credit from debt, you should be taking steps to save for a down payment. Generally, you should shoot for at least 20% of what you expect your purchase price to be.
Some lenders also require you to have at least one year’s worth of property taxes and homeowner’s insurance saved, which makes you a less risky candidate for a first mortgage.
Research, and Meet With, a Variety of Lenders
Just as you likely won’t stop searching for homes after the first one you tour, you shouldn’t stop searching for the best mortgage after meeting with just one lender.
Each lender usually offers several different types of finance options, and the options vary significantly between lenders.
Your first mortgage should not be taken lightly. Spend time meeting with different lenders, discussing your best options, and researching reviews from real customers, before deciding.
Preapproval is what will solidify the amount you should spend on a home. Once you choose the best lender for you, meet with a loan officer to discuss some of the homes you’re interested in buying.
Your loan officer will want an idea of the home’s value and selling price, as well as your financial status. Come prepared with all your financial documents for assets and household income.
Once you have a set price that you qualify for, you can search homes within the budget with your real estate agent.
Most preapproval letters expire within 90 days, so get started on your search as soon as possible, and keep a close eye on your time frame.
Finalize Your First Mortgage
Once you find the perfect home, it’s time to finalize your mortgage. When you make an offer on a home using your preapproval letter, you’ve begun the finalization process.
Your lender will usually require an appraisal and inspection at this point, which ensures that your home’s selling price is reasonable, compared to the current market.
If this process goes smoothly, your mortgage will be accepted, and you can begin closing on your new home.
The finalization process typically takes between a few days to a few weeks. You can help it go smoothly by being readily available to your loan officer to answer any questions or provide the necessary paperwork.