Explore your mortgage options
Buying a home can be overwhelming, especially for first-time buyers. That’s where we come in.
We’ve broken down the process into five straightforward steps, including resources to help you complete each one.
As the adage goes, “How do you climb Mt. Everest? One step at a time.”
1. Organize Your Finances
Your first order of business should be to get your finances in order. Getting organized will give you an idea of how much you need to save and what house price range to target. It’ll also make it easier to work with your mortgage lender when you’re ready.
Build your credit
If you want to buy a house, start thinking about your credit score. The higher your credit score, the more favorable terms you’ll likely receive from mortgage lenders. The reason is that, in the eyes of the lender, a better score makes you more likely to repay the loan on time.
Save for a down payment
You don’t need 20% down to buy a home. But the larger your down payment, the less money you’ll have to borrow from a lender. This translates to lower monthly mortgage payments, paying less interest over the life of the loan and building equity faster.
Make a budget and a plan for debt
Saving up for a down payment can seem overwhelming, especially if you’re starting from scratch. That’s okay. We advise starting simple, making a budget and sticking to it. If you can do that, time will become your friend – instead of feeling like an enemy – as your savings grow each month.
Estimate your monthly mortgage payment and get recommendations for savings goals.
Your debt-to-income (DTI) ratio will give you an idea of how financially healthy you are. Improving your DTI ratio will improve your chances of being approved for a mortgage and could influence the terms you’re offered.
This will give you an idea of how far your salary will take you in different places where you’re considering purchasing a home.
2. Find a Real Estate Agent
Partnering with the right real estate agent can be your secret weapon during this process. A good agent can suggest mortgage lenders, help you find a home and aid in negotiations. And that’s just the tip of the iceberg.
Take the time to find the right person and lean into their expertise. It’s a real-life easy button.
3. Get Preapproved for a Mortgage
“Mortgage” is a fancy way to say home loan. Because home loans are so big – often hundreds of thousands of dollars – lenders want to ensure you’re financially able to afford the loan.
If this step intimidates you, you’re not alone. But we’re here to walk you through it.
Choose your mortgage type
There are multiple types of mortgages. These loans have different requirements and perks. Take the time to research the most common ones.
- Conventional loan: The most common home loan, it’s a good option if you have a stable income and a good credit score.
- Adjustable-rate mortgage (ARM): ARMs offer lower initial interest rates and may be a good option if you don’t plan to stay in the home very long.
- Fixed-rate mortgage: This is a good option for those who value stable and predictable monthly payments and plan to stay in the home for years.
- U.S. Department of Agriculture (USDA) loan: A USDA loan may be a good option for those considering purchasing property in a rural area.
- U.S. Department of Veterans Affairs (VA) loan: Only qualifying service members and their families are eligible for VA loans. These loans come with perks like no required down payment.
- Federal Housing Administration (FHA) loan: An FHA loan can be a good option for those with lower credit scores or limited down payment funds.
We recommend doing some research before shopping for lenders because not all lenders offer all mortgage types.
Shop mortgage lenders
Lenders offer different products and terms, including different types of mortgages. Different lenders may also have unique eligibility requirements and lending criteria.
Shopping around will also give you a better understanding of the mortgage market so that you can make the best decision for your future.
Apply for preapproval
Once you’ve decided on a lender, you’re ready to apply for preapproval. This will involve providing documentation, like pay stubs, tax returns and more. It’s important to stay in close communication with your lender during this process and provide everything they ask for in a timely manner.
Getting preapproved isn’t required, but it’s highly recommended. It’ll make your offer stronger, give you a more concrete idea of what you can afford and accelerate the underwriting process.
Getting preapproved is stronger than being prequalified because your lender will actually review documentation and pull your credit score.
Technically, no. But practically, yes. Many listing agents won’t even entertain offers unless you’re preapproved. Also, you’ll eventually need to provide all the same information to your lender to secure a mortgage, so you might as well get a head start.
This will vary from lender to lender, but it can be done quickly – usually within 1 or 2 business days.
A hard credit pull can cause a small dip in the short term, but it won’t have an impact on your credit in the long term. Any lender will eventually need to do a hard credit pull to issue the mortgage. You can learn more about how preapproval impacts credit here.
4. Go House Hunting
Now you’re ready for the fun part! Work with your real estate agent to find homes within your price range.
Make an offer
If you successfully follow this list, you could be preapproved and have a real estate agent by the time you start looking for houses.
This means you could put in an offer on a home the same day you find one you like. Lean on your real estate agent’s expertise, and check out our advice for making a competitive offer.
5. Close on Your New Home
If the seller accepts your offer, congratulations! You’re ready to close. The closing process refers to the time between when an offer is accepted and when the buyer gets the keys and the seller gets their money.
A few steps need to happen to protect all parties involved in this transaction.
A home appraisal is when a third-party professional evaluates the home’s market value. Because the home serves as collateral for the loan, lenders usually require this step to make sure the home is worth the money they’re lending the buyer.
This is the buyer’s opportunity to have an inspector come and look over the home. They’ll point out any hidden defects or issues the buyer should be aware of. This also provides another opportunity for the buyer to negotiate with the seller based on the inspection results.
After the offer is accepted, your mortgage application will need to go through underwriting. This is the process where an underwriter combs through all your financial records to either approve or deny your loan application. If they approve your application, you’re clear to close.
Usually within 24 hours of the official closing date, or when you’ll take ownership of the property, this is your final chance to review the property. Make sure any negotiated repairs were made and that the seller has completely moved out.
You’ll need to budget for closing costs, which include things like the title search fee and attorney fees. These funds are in addition to your down payment and are usually due at closing, the same day you get the keys.
Remember to take the home buying process one step at a time. If things get overwhelming, break it into even smaller parts. You can do this! Don’t be afraid to lean on friends and family for help, and take advantage of the professionals in your corner – like your real estate agent and mortgage lender.
Take the first step toward buying a home.
Get approved. See what you qualify for. Start house hunting.