How to apply for a mortgage

First Time Home Buyer? Here’s How To Apply For A Mortgage

As a first-time homebuyer, there’s a lot you don’t know about mortgage loans. The more you learn, however, the more you’ll be able to save, so it pays to start early. First-time homebuyer loans aren’t as complicated as you think, and in this guide, we’ll break down everything you need to know about home loans from start to finish. Ready? Here’s how to apply for a mortgage.

What is a mortgage?

Also known as a home loan or mortgage loan, a mortgage is a type of loan you usually take out to buy, build, or renovate a house. Technically, the term “mortgage” refers to any type of finance arrangement in which you use your property as collateral, so you can even take out what’s commonly known as a “second mortgage” on a home you already own.

As a first-time homebuyer, however, you just need to know how to apply for a mortgage and everything the process entails. Let’s start off with a few basic terms:

Mortgage company

Mortgage companies are institutions that provide home loans. As mortgage brokers, we don’t actually offer loans, but we can certainly hook you up with the nation’s best home lenders and walk you through the lending process with guides like these.

First-time homebuyer loan

First-time homebuyer loans are the same as normal home loans. At the same time, you might be discriminated against if your credit score is low or you have a risky debt-to-income ratio, so the options provided to first-time homebuyers without established credit histories are typically more limited.

Loan application

Whether it’s online or on paper, your loan application is what you fill out and sign to request a loan from a bank. You won’t want to apply for a loan, however, until you’re completely ready.

How to apply for a mortgage – 7 simple steps

Sometimes, all it takes to solve a problem is simplification. If the home loan process seems too overwhelming to you, just break it down into the seven following steps. Each box you check will bring you one step closer to your dream: home ownership.

1. Estimate how much house you want

Honestly and carefully assess your needs, and use home-browsing apps like Zillow to get a general idea of how much housing costs in your area. Looking through endless house listings will only make you crazy when you don’t have everything else ready, so just get a basic feel of the market for now. Also, decide on basic things like how many bedrooms and bathrooms you want and whether a basement or attic is a dealbreaker.

2. Get your paperwork together

How much money do you make a year? How much debt do you have? What’s your credit score? If you don’t have clear, definitive answers to these three questions, you have a lot of work to do before you talk to a lender. Your lender will require detailed identification and financial information on both you and anyone else involved in the loan, so it pays to get all the relevant ducks in a row ahead of time.

3. Put on a happy face

Believe it or not, scoring a dream home loan often comes down to a personality test. You can learn a lot about a person from their financial information, but ultimately, it’s you, and not your SSN or credit score, that will be footing mortgage payments every month.

Understand what lenders want to see ahead of time, and always produce your paperwork promptly⁠—ideally, give your lender what they need before they even ask for it. Here are some examples of ways your lender will put you to the test:

Scrutinizing your credit score

Have a history of late payments? Do you use too much of your available credit? Now is the time to find out. Generally, homebuyers with credit scores over 700 have at least a shot at decent loans. The best terms are reserved for buyers in the 750+ range, however, so start paying down debt, adding credit lines, reducing credit spending, or doing whatever you need to do to get your score into that healthy (and to lenders, much more attractive) range.

Assessing your ability to save

Your lender will want to get an approximate idea of your net worth. No matter how much money you make right now, no one is immune from hard times, which means you need to demonstrate considerable savings to be eligible for reasonable home loan terms.

Making sure your debt isn’t out of control

It’s okay to have some debt, but lenders don’t want to sign on a sinking (bankrupting) ship. Demonstrate that your owed money and interest payments won’t topple your monthly income, and you’ll gain eligibility in your lender’s eyes.

4. Pick the right mortgage type

There are a few different types of mortgages offered to American homeowners. One mortgage might be perfect for you while the same mortgage is perfectly wrong for another homebuyer. Learning the difference is key:

Conventional loan

With a conventional loan, you usually have to put 20% down, and the terms all depend on your creditworthiness.

VA loan

Through a special program, U.S. military active duty service members and veterans may be eligible for low-interest, no-down home loans.

FHA loan

With FHA loans, you often have to pay mortgage insurance every month, but you can put as little as 3.5% down. First-time homebuyers have often looked to FHA loans for these reasons, and you can always swap your FHA for a conventional loan a few years down the line.

USDA loan

If you want to live in a rural community, you might be eligible for a no-down USDA loan.

5. Choose a lender

Which lender is best for your needs? Finding out can be hard. Take a look at the market, and remember that local credit unions often give great deals to first-time homebuyers. It’s best to limit your risks, however, and working with a home loan broker can help you weed out the lenders that aren’t good fits.

6. Make your final decisions

Are you sure you’re ready to buy a home? If your answer isn’t a resounding “Yes!”, then it’s time to take some things into consideration. How much money can you (reasonably) put down? Are you sure there aren’t any future expenses that might put your home ownership in jeopardy? Sit down with all the concerned parties, and make absolutely sure you’re ready to proceed.

7. Apply for a loan

All that’s left now is to pull the trigger. Work with a home loan broker to complete the loan application process, and you may also want to have a realtor, a lawyer, and your best friend’s mom look at your loan application before submission just to make sure you dotted all your “i’s and crossed those “t”s. Double-check, submit, and get ready to wait.

When do I get my home loan?

That depends. Your lender will need to be completely certain about all the details of the arrangement before they proceed. Mainly, it’s the lender’s job to make sure the mortgage is profitable, so your creditworthiness will be put to the test the moment your loan application slides across an underwriter’s virtual desk.

First-time homebuyers don’t need to be intimidated by the home loan process. With the help of an expert broker, you’ll be guided through every step, and you’ll have an expert on your side to make getting your loan easier. Contact us today to match up with a lender that wants to make your dream home into a reality.

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