Embarking on the journey of buying your first home can be daunting, especially when it comes to understanding the mortgage process. We’ve gathered insights from mortgage brokers and real estate professionals to ease your path. From understanding income and debt ratios to exploring down payment assistance programs, here are eighteen expert pieces of advice to guide first-time homebuyers. Here are 18 essential tips for first-time homebuyers navigating the mortgage process:
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- Understand Income and Debt Ratios
- Get Pre-Approved Early
- Analyze Your Debt-to-Income Ratio
- Know Your Down-Payment Options
- Connect With Industry Experts Early
- Find a Personalized Mortgage Advisor
- Secure a True Mortgage Pre-Approval
- Collaborate With Real Estate Professionals
- Talk to Multiple Mortgage Experts
- Focus on Credit, Capacity, and Collateral
- Organize All Necessary Documents
- Boost Credit Score Before Applying
- Leverage Bank Competition for Best Deals
- Compare Multiple Mortgage Offers
- Explore Down Payment Assistance Programs
- Save for a Substantial Down Payment
- Learn About Mortgage Loan Types
Understand Income and Debt Ratios
First, ask yourself, what is the minimum income required? Are you paid hourly or on a salary? Do you earn bonuses, commissions, overtime, or other income? What are your guaranteed hours of work? What do you have for other liabilities? Together, these determine your debt service ratios: gross debt service (GDS—mortgage, taxes, heat, condo fee) must not exceed 39% of the usable gross income and total debt service (TDS—GDS plus all other liability payments) can’t exceed 44% for high-ratio mortgages.
Obtaining a mortgage pre-approval will inform you of your maximum mortgage amount based on your current income and debts, as well as a hold on the rate. Homebuyers must know that a pre-approval does not provide any kind of guarantee to receive final approval of financing, no matter if the pre-approval comes from a mortgage broker or your bank. The lender will not do a final review of your documents and complete confirmations for final credit approval until you have a live deal.
Once you have your pre-approval, you should then begin interviewing realtors to find who is the best fit for you and your family.
Next, house hunting can be the most intensive and frustrating part of the process. Setting out your needs and wants is important; your realtor should go through this with you. Your realistic needs are the most important to look for, as wants are endless. Drive and walk around neighborhoods that interest you at different times to get a feel for the area.
Your realtor will help guide you in making a competitive offer. The purpose and need for financing conditions and home inspections are to help protect you as a buyer from unknowns. The financing condition gives the lender time to review the property and your documents to approve your mortgage. The home inspections allow you to hire a professional to review all the major components of a home to check their current working condition.
The lender may require an independent third-party appraisal on the property that you, the buyer, pay for. This will determine the property’s current market value, and the lender uses this as part of the final approval for your loan.
Your solicitor will then receive a set of mortgage instructions from the lender. Finally, your lawyer will provide you with the balance you need to bring via a bank draft for closing.
Keith Uthe, Mortgage Broker, Mortgage Alliance Enrich Mortgage Group
Get Pre-Approved Early
My top advice for first-time homebuyers is to get pre-approved for your mortgage loan as early as possible. This involves submitting all your financial documents, completing a loan application, and having a local lender check your credit. Being honest and transparent about your finances with your loan officer will help identify and resolve any potential issues.
It’s best to complete this process before you start house hunting, so you know exactly what you qualify for. Although the pre-approval process can feel intimidating and invasive, providing all necessary details upfront will make things smoother later on. Understanding the steps and requirements will alleviate the uncertainties and help you navigate the path to homeownership with confidence.
Reed Letson, Loan Officer, Elevation Mortgage
Analyze Your Debt-to-Income Ratio
When deciding on a mortgage, you should analyze your debt-to-income ratio. Commonly known as DTI, this is one of the most essential metrics to consider before buying a home and getting a mortgage. The ratio compares your monthly payments to your monthly earnings. Naturally, if your debt is higher than your earnings, then nobody will provide you with a mortgage, as you won’t be able to make the payments on time, and you’ll default on the payment.
You should keep your ratio as low as possible, but you must remember that a mortgage is not the only cost you’ll have to cover. This also includes your car payments, your credit cards, and other costs of life. Therefore, you should be careful when calculating the DTI, as the longer you think, the more costs you’ll realize there are. If your DTI is very low, let’s say 15–20%, then you can consider paying more upfront in order to reduce the total cost of the mortgage.
Holly Andrews, Managing Director, KIS Finance
Know Your Down-Payment Options
If you’re a first-time homebuyer, my advice is to always know your down-payment options to navigate the mortgage process more smoothly. Understanding your down-payment choices is crucial because it’s the upfront money you put toward buying your home, which can influence your interest rate, loan terms, and monthly payments.
Your ideal down payment depends on your financial situation. For instance, if you’ve saved a substantial amount, making a larger down payment could secure you a lower interest rate. Alternatively, if your credit is strong, you might qualify for a mortgage that doesn’t require any down payment.
Consulting with a mortgage broker is a great way to explore your down-payment options and discover the best mortgage for your needs. Brokers can assist you in selecting the most suitable lender and mortgage product based on your circumstances. They can also advise on how much to save for your down payment and help you evaluate various mortgage offers.
Michael E. Farah, Founder, Realtor and Real Estate Attorney, The Farah Law Firm, P.C.
Connect With Industry Experts Early
There’s no such thing as being over-prepared to purchase a home. First-time homebuyers should be reaching out to industry experts (mortgage loan officers, realtors, etc.) as soon as possible to learn everything they can about financing a home purchase. There’s so much to learn, with countless dos and don’ts, that first-time homebuyers need to get connected well in advance to take the necessary steps so they are fully prepared.
Shawn Malkou, Managing Mortgage Broker, X2 Mortgage
Find a Personalized Mortgage Advisor
Congratulations on deciding to explore homeownership! It’s an exciting journey that starts with finding the right mortgage. While interest rates can seem daunting, what truly matters is understanding your financial capacity. Can you comfortably manage mortgage payments while maintaining a good quality of life?
When choosing a mortgage advisor, look for a seasoned mortgage broker who shows genuine interest in your financial situation and goals. Avoid advisors who immediately dive into rates and terms; instead, seek someone who asks insightful questions about your homeownership goals, your plans for the future, and how owning a home fits into your long-term financial strategy.
Ask yourself: What are my goals in owning my first home? Am I planning to stay for at least five years? How could homeownership contribute to my family’s financial security? Understanding these aspects will help you and your advisor tailor a mortgage solution that aligns with your needs.
Remember, the right lender should prioritize getting to know you personally before discussing financial details. This approach ensures they can provide personalized guidance and support throughout the mortgage process.
Mike Miklaus, President and Mortgage Broker, Integrity Mortgage
Secure a True Mortgage Pre-Approval
The one piece of advice I would have for first-time homebuyers is to be aware of how truly important a true mortgage pre-approval is. There are so many qualification nuances depending on the type of mortgage you choose. These nuances can be a huge roadblock later if you don’t get a true pre-approval prior to beginning the home-shopping process.
A qualified mortgage professional acts as a financial advisor in that they will look at your entire financial picture and recommend the best product for you based on that. They will also identify any roadblocks you could face from underwriters and prepare you for those, and advise you on how to remedy that immediately or work on it so you can qualify in the future. Buying a home can be so much less stressful and seamless if you allow a mortgage professional to do their due diligence upfront.
Christy Cunningham, Mortgage Broker, Black Diamond Lending
Collaborate With Real Estate Professionals
Buying your first home and navigating the emotional roller coaster can be overwhelming. It’s important to work closely not only with your realtor but also with a mortgage broker and real estate lawyer to ensure your experience is smooth.
Start by knowing your budget by getting a pre-approval. Submit your income documents and discuss your down payment options with the mortgage broker. Secure a budget, so you know the homes you’re shopping for are attainable.
From there, your realtor, mortgage broker, and real estate lawyer can navigate the logistics of your purchase behind the scenes to ensure you have a positive home-buying experience.
Stacey Lush, Partner, Mortgage Broker, Mortgage Connection
Talk to Multiple Mortgage Experts
As a mortgage broker myself, I still advise our clients to talk to multiple loan originators and mortgage experts. Don’t settle for the first recommendation you get.
A good and honest mortgage broker will not request any upfront fees or deposits for things like appraisals or credit reports. They genuinely want to help you save thousands of dollars upfront.
Look for a mortgage broker who offers a close-on-time guarantee. This means they will pay you if they don’t close your loan by the promised date, as long as your application was approved on the original terms. This shows they are committed to getting your loan processed efficiently and on time.
Mike Roberts, Co-Founder, City Creek Mortgage
Focus on Credit, Capacity, and Collateral
My advice for first-time home buyers navigating the mortgage process would be to focus on the three C’s: credit, collateral, and capacity.
When it comes to credit, the higher the credit score, the lower the mortgage rate, which means the better the mortgage payment. So to get there, never be more than 30 days late. You must have great credit utilization by keeping the balance on your credit cards below 50% of the high limit that they give you.
Second is capacity. When it comes to qualifying, first-time home buyers need a two-year work history or one that follows the degree that relates to the position you have today. Affordability is also capacity. Hold that mortgage payment between 30-35% of your gross income as a rule of thumb.
Collateral is the proceeds available to buy your home. Depending on the market, you can buy a home with as little as 3% down for the down payment, but you’ll want to have at least an additional 2–2.5% of funds in the event you have to pay your closing costs and your prepaids.
Rinal Patel, Founder, Webuyphillyhomes
Organize All Necessary Documents
A vital piece of advice I’d offer to first-time homebuyers is to meticulously prepare and organize all necessary documents before starting the mortgage application process. This typically includes tax returns, pay stubs, bank statements, and other financial documents that lenders will review to assess your creditworthiness. Having these documents ready can significantly expedite the application process and reduce stress.
I also suggest keeping a digital copy of all submissions for your records. Proper documentation is key to a smooth mortgage process and helps avoid delays that could jeopardize your purchase.
Tony Mariotti, CEO, RubyHome
Boost Credit Score Before Applying
For first-time homebuyers, understanding your credit score is crucial. Before buying my first home, I made sure my credit was in top shape, which helped secure a better mortgage rate. Take the time to review your credit report, pay down debts, and avoid large purchases before applying. This preparation can save you thousands over the life of your mortgage and make the whole process smoother.
Amber Couron, Owner, Home Buying Hounds
Leverage Bank Competition for Best Deals
The one piece of advice I would give customers is to remember banks want and need their business. Therefore, if they have a permanent salaried job, the required deposit, can demonstrate the repayment capacity, and have no previous credit issues, they will get a mortgage. They should then seek the advice of an adviser/broker to ensure they get the best rate/deal on offer.
Fran Cooke, Senior Financial Planner/Advisor, All Financials
Compare Multiple Mortgage Offers
One piece of advice for first-time homebuyers when navigating the mortgage process: shop around and compare mortgage options from several different lenders. Don’t settle on the first offer that you receive, as various lenders offer different interest rates, loan terms, and closing costs. By researching and getting quotes from multiple lenders, you can be sure to get the best mortgage option for your financial situation and long-term goals. It would also be quite important for you to work with a good mortgage broker who can guide you through the process and negotiate on your behalf for the best terms.
Darcy Turner, Founder, Investor Home Buyers
Explore Down Payment Assistance Programs
Look into down payment assistance programs offered by your county or city. Chances are there will be some kind of program to help you with the upfront costs of purchasing a home, making the process more affordable and accessible.
You simply have to visit your local county or city’s official website and look for sections related to housing and community development. These sections will tell you about the available programs, eligibility criteria, and the application process. Alternatively, you could also just contact local housing authorities or non-profit organizations that focus on affordable housing, since they often have the latest information and can guide you through the process.
Riley Beam, Managing Attorney, Douglas R. Beam, P.A.
Save for a Substantial Down Payment
My advice for first-time homebuyers is to save for a substantial down payment. As President of NOLA Buys Houses, I’ve found that a larger down payment can significantly reduce your mortgage payments and interest rates. It also shows lenders that you’re financially responsible and serious about your investment. Aim for at least 20% to avoid private mortgage insurance (PMI), which can add to your monthly costs. Planning and saving ahead can make your homebuying journey smoother and more affordable.
Carl Fanaro, President, NOLA Buys Houses
Learn About Mortgage Loan Types
My advice to first-time homebuyers is to invest time in understanding the different types of mortgage loans available and the terms associated with each.
From fixed-rate to adjustable-rate mortgages, each type has its advantages and specific conditions that can impact your finances in the long term. Before you decide on a mortgage, make sure to familiarize yourself with terms like interest rate, APR (Annual Percentage Rate), and amortization schedule.
I recommend consulting with a mortgage lender or a financial advisor to help explain these concepts. This knowledge is crucial in making an informed decision that aligns with your long-term financial goals and ensures you are not caught off guard by any future changes in payments.
David Ciccarelli, CEO, Lake
