How can you secure your first-time mortgage in 2024? In this article, we will take you through a step-by-step guide from start to finish.
If you are in the market for buying your first property, congratulations! Owning a home is one of the most important steps that one can take on their path to financial stability, and it is a great investment towards your future.
As a leader in home loan financing, we know that securing your first-time mortgage usually comes with a lot of questions and uncertainties, as well as certain challenges that you may not know how to overcome.
For this reason, we have prepared this comprehensive, step-by-step guide on everything you need to know so you can effectively secure your first-time mortgage this year.
So, without further ado, let’s get right into it:
1. Understanding the home loan basics
At this stage of the process, you probably already know what a mortgage is, so there’s no need to get into too much detail – let’s just say that it’s a type of loan that allows you to purchase real estate without paying the whole price upfront.
Instead, you pay in monthly instalments over a set period of time as agreed with your lender, and the home itself serves as a collateral to guarantee that you will pay back.
However, one thing that’s essential to understand if you are looking to secure your first-time mortgage this year is that there are different types of mortgages that you can choose from – and it’s important to understand the differences to ensure that you will choose the right one for your needs and goals.
What are the different types of mortgages?
The different types of mortgages can be summed up into the following:
- Fixed-rate mortgages – as opposed to adjustable-rate mortgages (ARM), this type allows you to secure a constant interest rate that doesn’t change throughout the life of the loan. This makes your financial situation more predictable, but keep in mind that they are usually associated with higher costs and initial interest rates.
- Adjustable-rate mortgages (ARM) – this type of mortgage is a mix between a fixed interest rate for a certain period of time, followed by an interest rate that fluctuates with the market. They usually offer lower initial interest rates, but payment amounts may increase over time.
- Interest-only mortgages – another type of mortgage, although not that common, is interest-only. This means that you pay only the interest on the loan for a set period of time, and after this period has passed, you pay both interest and principal. So, you start with lower initial payments that go up later on.
- Reverse mortgages – while this is a very particular product that you probably don’t need if you are looking for a first-time mortgage, we still wanted to touch on it briefly. Reverse mortgages are made for homeowners older than 62 that want to convert a portion of their home equity into cash while still living in their own home.
As a future homeowner, do focus on the first three types of mortgages – discussing all options with your lender is important so you can make a well-informed decision.
What are the different types of home loans?
Now that you have a good understanding of the different types of mortgages, it’s also important to take a look at the various types of home loans that you have at your disposal.
Of course, keep in mind that these may vary by lender; but let’s look at some of the most common ones, and especially the home loans that are the most suitable for a first-time mortgage:
- Conventional loans – conventional loans are not backed up by a government institution, which means that the terms and rates are defined by the lenders. They usually offer more flexible terms, especially if you have a good credit.
- FHA loans – on the contrary to conventional loans, FHA loans are insured by the government (Federal Housing Administration), and they don’t require a very large down payment. They can also be granted even with a moderate credit score.
- Jumbo loans – jumbo loans, on another hand, are typically used for home financing that exceeds the limits of conventional loans. The qualification criteria is generally more strict, and they usually require a higher credit score as well (+700).
- VA home loans – this government-backed loan is available to qualified veterans, as well as active duty for all branches of the military. In this case, it’s the Department of Veteran Affairs that sets the terms and conditions.
What is the minimum credit score for each loan?
Another thing to keep in mind if you are looking to secure your first-time mortgage is the minimum credit score required for each loan. So, let’s take a quick look:
- Conventional loans – 620 – 740
- FHA loans – 580
- VA loans – 640 is recommended (no minimum)
- Jumbo loans – 700 – 740
These are the general ranges that lenders may expect from you, but as a rule of thumb, the higher your credit score, the better terms and rates you may get. For FHA loans, you may still get a loan if you have a credit score of over 500, although conditions may be different.
2. What are the benefits of homebuying?
Now that you have a good understanding of the basics of a first-time mortgage, let’s take a look at the benefits of homebuying (and trust us, there are many!):
Among the biggest benefits of homebuying is that it’s a long-term investment for a more secure financial future. As you pay off your mortgage, you gradually build equity in your home, which means that you will fully end up owning your home after the mortgage is paid.
Considering that real estate’s prices tend to increase over time (despite the normal fluctuations), you will gain a significant financial asset with a high value.
When you become a homeowner, you have a higher certainty and security when it comes to your housing costs. As opposed to rent, which may increase at any time upon the decision of the landlord, your monthly payments remain consistent over the years – especially if you have a fixed-rate mortgage.
This not only helps you better plan your finances over time, but will also reduce anxiety associated with uncertainty.
Another benefit you may enjoy from securing your first-time mortgage are tax deductions. You may be eligible for various tax deductions, including mortgage interest and property tax deductions.
These can reduce your overall tax liability, but keep in mind that the specifics may depend on your individual circumstances, as well as the tax laws of your state.
Of course, becoming a first-time homeowner also means that you will enjoy greater privacy and independence as opposed to renting. This not only gives you more control over your living environment, but also reduces constraints imposed by landlords.
You can also modify, renovate and decorate your house to your tastes – which will enhance your living experience, may improve your quality of life, and it can even increase the value of the home.
3. How to prepare for a first-time mortgage
Now that you know the basics and the benefits, it’s time to start getting prepared for a first-time mortgage. This can be summed up in a few key steps:
3.1. Work on your credit score
As we discussed earlier, having a good credit score is essential if you are looking to secure a first-time mortgage. This includes obtaining a credit report from the major credit bureaus (Equifax, TransUnion, and Experian), and ensuring that there are no inaccuracies (and disputing them if necessary).
In addition, make sure to always pay your bills on time – as well as reduce credit card balances so you can improve your score. The higher, the better!
3.2. Ensure you have enough for a down payment
One of the most important ways to prepare for becoming a homeowner is to ensure that you have enough for a down payment. You can consider setting up an automatic savings plan to help you save faster.
Keep in mind that the exact amount of down payment you need may vary by loan, so discuss this with your lender to have a better idea on what to expect.
3.3. Review your spending
In order to secure a first-time mortgage, make sure that you have a falcon view of your spending. Do you have a realistic budget? Are you managing your debt effectively? Reducing existing debt will be essential to avoid poor loan terms or getting rejected altogether.
Make sure to maintain a healthy debt-to-income ratio – ideally, around 30% or less. You can stretch it as far as 43%, but lower will usually get you better terms and rates.
3.4. Prepare for homeownership costs
On top of the costs associated with a down payment, there are other costs that you should be prepared for, including:
- Property taxes
- Homeowners insurance
- Maintenance costs
- HOA (homeowner association) fees
- Real estate commissions
- Future expenses (repairs and renovations)
3.5. Prepare all the necessary documents
In order to secure a first-time mortgage this year, you will also need to prepare all the necessary documentation that your lender will need so they can revise your financial situation. This typically includes, but is not limited to:
- Proof of income – recent pay stubs, W2 forms, tax returns
- Proof of employment – name and address of your employer for the past 2 years
- Credit information – permission to run a credit check
- Recent bank statements – the last 2-3 months for checking & savings accounts
- Investment account statements – including retirement accounts
- Debt information – information on your debts, from car loans to student loans
- Proof for a down payment – it can include gifts
- Renting history – including landlord references and proof of on-time payments
- Identification – this can be a government-issued ID or your driver’s license
- Property address – the address of the property you want to purchase
4. Get a mortgage pre-approval
If you don’t have your dream home yet, you can get a pre-approval from your lender so you can get a better idea on how much you can borrow for your first-time mortgage. It also shows sellers that you have a serious intention to purchase their home, and you are also qualified to do so.
Mortgage pre-approval is essentially a process in which the lender evaluates your financial situation in order to determine how much mortgage they are willing to lend you, and under what terms.
You can start by choosing a committed and reliable lender such as Jet Direct Mortgage – we offer unmatched customer service to ensure that your home buying process is as stress-free as possible.
Begin by submitting a mortgage application to your chosen lender. This includes providing detailed information about your finances, including income, assets, debts, and credit history. The lender will perform a credit check and evaluate your financial situation.
5. Mortgage application process
At this point, you should already have a good understanding of everything you need to know so you can secure your first-time mortgage! Once you have collected all the necessary information, chosen your dream home, and gotten your pre-approval, you are ready to begin your mortgage application process.
Decide on the lender and the loan that best fits your needs. If you are not sure about the loan, you can speak with Jet Direct Mortgage so we can help you find the ideal option for your financial situation and needs.
Then, begin the application process, submit the documents that you prepared in the previous steps, and get ready to provide any additional information that the lender may need!
How much should your first mortgage be?
The size of your first mortgage should align with your financial situation and future plans. It’s generally advised to choose a mortgage where the monthly payments, including taxes and insurance, don’t exceed 28-31% of your gross income.
Also, consider other debts and your lifestyle needs to ensure affordability and financial stability.
What is the minimum credit score required for a first-time mortgage?
The minimum credit score required for a first-time mortgage varies by loan type. For conventional loans, it’s typically 620. FHA loans are more lenient, with minimums as low as 500. VA and USDA loans do not have a set minimum but usually favor scores around 620.
Are there any special mortgage programs for first-time homebuyers?
Yes, there are special mortgage programs for first-time homebuyers, including FHA loans with lower down payments and credit requirements, USDA loans for rural properties, and VA loans for veterans and service members.
How long does the mortgage application process take?
The mortgage application process typically takes about 30 to 45 days from application to closing. However, this timeline can vary based on the lender’s workload, the complexity of your financial situation, and any issues with the appraisal or title.
Quick and accurate document submission can expedite the process.
What is pre-approval and should I get pre-approved?
Pre-approval is a lender’s conditional agreement to lend you a specific amount based on your financial information.
It’s advisable to get pre-approved as it gives you a clear budget for house hunting and strengthens your position in competitive real estate markets, showing sellers you’re a serious buyer.
Experienced Chief Operating Officer with a 20 + year demonstrated history of working in the banking industry. Skilled in all aspects of the residential mortgage market . Strong business development professional with a Bachelor of Science (BS) focused in Business Administration and Management, from St. Joseph College. A direct endorsement underwriter and a licensed Mortgage Loan Originator.