How to Apply for a Mortgage as a First-Time Homebuyer!

First-Time Buyer Welcome Matt

You’ve decided to buy your first home. Congratulations! Now you need a mortgage. Take a big breath — it’s not every day you apply for a loan with that many zeros.

Closing a mortgage transaction takes about 45 days on average, and the process itself tends to allude many first-time homebuyers. Our team here at 1st Securities Mortgage is here to shed some light on the application process and provide insight into exclusive first-time homebuyer programs you may qualify for.

Let’s dive in!

The Mortgage Process 

Step 1: Applying

You and your co-borrower, if you have one, will need to provide your lender with documentation to verify your employment history, creditworthiness, and overall financial situation. Before completing an application, you’ll want to ensure you have these 6 things:

  • W-2s (for the last 2 years)
  • Recent pay stubs (covering the most recent 30 days)
  • Complete bank statements for all financial accounts, including investments (for the last 2 months)
  • Signed personal and business tax returns (all pages and relevant schedules)
  • If self-employed, a copy of most recent quarterly or year-to-date profit/loss statement
  • A copy of the signed Purchase and Sales Agreement (If Applicable) 

Your lender may require more documents, depending on your circumstances and the type of mortgage for which you’re applying. You can expect your lender to ask you details about your employment and financial history. With your permission, your lender will also run your credit report as part of the process. 

Be sure to take your time and carefully fill out the application as completely and accurately as possible. Not disclosing credit problems up-front or holding back requested documents will only delay the process and potentially prevent mortgage approval, so it’s to your benefit to fully disclose everything about your finances.

Step 2: Finding an Experienced Lender

You’ll find no shortage of banks, online lenders, mortgage brokers, and other financial institutions eager to take your mortgage loan application, however, it is vital that you choose an experienced lender that you trust. Although many parts of the mortgage process are the same across all lenders, there are some differences that can affect the fees you are charged and the service you receive that are worth considering while you shop around.

You will be provided with a Loan Estimate which contains important information, including the estimated interest rate, monthly payment, and total closing costs for the loan. It also gives you information about the estimated costs of taxes and insurance, and how the interest rate and payments may change in the future. It’s important to understand that this is a full disclosure of what your mortgage payments will be.

When you receive your Loan Estimate, the lender has not yet approved or denied your loan application. It simply shows you what loan terms the lender expects to offer if you decide to move forward. And if you do, the lender will then ask you for additional financial information.

Step 3: Choose Your Lender and Commit

You’ve compared lenders’ rates and fees. Now assess their responsiveness and trustworthiness. Once again, think twice about anyone who makes you feel pressured. This is the most significant purchase many people will make in their lifetime, so you want to trust the people handling your loan.

Then contact the lender of your choice to say you’re ready to proceed.

Step 4: Your Mortgage is Sent to Processing

Every statement you made on your mortgage application goes under the microscope in this stage. Brace yourself for questions and document requests. Responding promptly keeps everything moving forward at a steady pace.

Step 5: Underwriting

Underwriting is the process by which your lender verifies your income, assets, debt, and property details to issue final approval on your loan application.

Underwriting happens behind the scenes, but that doesn’t mean you won’t be involved. Your approval may ask for additional documentation, such as where bank deposits came from, or ask you to provide proof of additional assets.

Once underwriting is complete, this is the time your Loan Originator will reach out to let you know the status of approval and request any remaining documentation that may be required to get you to the closing table.

Step 6: Closing!

You’ve done it! You made it to the closing table. With time to spare (hopefully) before your closing date.

After notifying you, the lender must send another federally required form, the Closing Disclosure, three business days before your scheduled closing date. In reviewing the Closing Disclosure, you should go over the original Loan Estimate and closing costs with your lender and address any questions with your Loan Originator if there are any differences.  


Types of First-Time Homebuyer Programs

Government Backed Loans

Government-backed loans can allow you to get a home with a low down-payment or bruised credit. The government ensures government-backed loans, meaning they pose less of a risk to a lender.

This also means that lenders can offer borrowers a lower interest rate. There are currently three government-backed loan options: FHA loans, USDA loans and VA loans, and each program has its own list of qualifications.

Tax Deductions

Who doesn’t love a tax break? Federal and state deductions can lower your taxable income after purchasing a home.

For example, you can deduct the full amount of your mortgage insurance costs for a primary and one vacation home from your federal taxes if your mortgage is worth less than a certain amount. This includes private mortgage insurance (PMI) and mortgage insurance premiums (MIP) associated with FHA loans, as well as the guaranteed fees for USDA loans and the funding fee for VA loans.

You can also deduct the cost of interest paid during the year on loan amounts up to the above limits for a primary and one second home. These are perhaps the two biggest homeownership deductions.

Additional deductions and credits may be available through your state or local government.

Down Payment Assistance (DPA)

A down payment is a large initial expense when you buy a home, and it’s required for most types of mortgages. Fortunately, many lenders accept down payment assistance, which can help you cover the upfront costs of a down payment.

Down payment assistance programs are typically grants or low- to no-interest loans, and many are exclusive to first-time buyers. The specific assistance programs you qualify for can impact how you can use your funds and whether you’ll need to pay them back.

Home Buyer Education

You can take advantage of online educational programs and resources if you aren’t sure how to start your home search. A good first-time home buying class can be free or low-priced, and can teach you about loan options, the buying process, and how to apply for a mortgage. Browse real estate courses online and look for ones aimed at first-time home buyers.

Closing Assistance

Like down payment assistance, there are government-sponsored and private programs that can help you pay closing costs. Closing costs are additional fees you pay at the end of the mortgage process. Closing costs are typically around 2% – 6% of the total cost of your home loan. Like down payment assistance, closing cost assistance can come through a grant or loan.

You can also look to your seller for help with closing costs, through seller concessions. The seller may be able to help with attorney fees, real estate tax services and title insurance. They can also help pay for points upfront to lower your interest rate and contribute to property taxes.

Here at 1st Securities Mortgage, our goal is to make the process as simple and easy to understand as possible, so you can focus on finding your dream home.

Buying a home is a big step, but with the right preparation, it can be a smooth and enjoyable process. By studying these steps and being well-prepared, you'll be on your way to finding the perfect home and securing a mortgage that fits your needs. Remember to take your time, do your research, and don't be afraid to ask for help.

Are you ready to start your homebuying journey? Connect with one of our 1st Securities Loan Originators today!