A First Time Homebuyer's Step-by-step Guide for a Mortgage

Mortgage and Lending with Luminate Home Loans, Inc. - NMLS# 150953 NMLS# 274125

houseBuying a home is a BIG step!  This step-by-step question and answer guide should give you the information you need to get started on your way to being a First Time Homebuyer.

Why Buy instead of Rent?  Buying a home can be a wise investment.  Typically, even in a down market, homes increase in value over time.  You can build ownership interest - this is known as equity.  Another benefit to owning vs. renting is that the interest you pay on a home mortgage is typically tax deductible.

Beginning is as Easy as 1-2-3! 

  1. Apply for a mortgage pre-approval.
  2. Put together a personal "home team" of experts:  An experienced real estate agent or builder and a knowledgeable loan officer.
  3. Learn more about the home buying process and ask yourself some key questions.

How much home can I afford?  To determine your maximum mortgage amount, lenders look at:  Your Credit History, Available Cash for Down Payment and Closing Costs, Your Income, and Your Existing Debt and Financial Obligations.  Your maximum mortgage amount plus your planned Down Payment equals your Home Purchase Price Range.  Lenders use a debt-to-income ratio to determine the loan amount for which you may qualify.  Once you know your maximum mortgage amount, it is up to you to determine if it is right for you.

How important is my credit?  A history of paying monthly payments on time indicates that you are likely to make mortgage payments on time.  Your credit score (FICO Score) can be a factor in the kind of mortgage program for which you may qualify.  Your credit history can also affect the amount required for a down payment, the amount of money you can borrow in relation to your income, or the interest rate you are offered.  If you haven't already, obtain a copy of your credit report.

To Establish or Improve your Credit Rating:  Use credit to purchase low priced items.  Make a few prompt, minimum payments....then pay off the balance.  Try to pay off outstanding loans or credit card debt.  Consider closing some credit card accounts.  However, always keep the "oldest" credit account open even if you don't use it.  This will help when the credit companies determine your credit history.  If you have NO established credit history, or less-than-perfect credit, there are loan programs that can help you buy a home.

How much do I need for a Down PaymentToday's flexible mortgage programs make down payments less of a challenge.  Some homebuyers may be eligible for down payment assistance.  You may be able to buy a home with low or no down payment.  Loans with down payments of 20% or less will require mortgage insurance.  Most programs also require funds of 1-2 month's loan payments in reserve after loan closing.

What about closing costs?  Generally, closing costs equal between 3% to 6% of the home purchase price.  "Prepaids" must be collected at closing to cover the future month's taxes, interest and insurance.  Most loan programs allow you to finance your other closing costs.  Some programs allow all or partial closing costs to be paid by home sellers or other sources.

What does my mortgage payment include?  Usually, your mortgage payment is made up of four amounts - often referred to as PITI:  Principal, Interest, Taxes and Insurance.  Certain funds may be held in an escrow account pay tax and insurance bills as they come due.

Which type of loan is right for me?  By working with an experienced mortgage specialist, together you can select a program that best suits your needs and financial goals.  There are a wide range of loan products on the market today including:  Government loans (FHA & VA), Conventional Loans, and new Flexible mortgage programs. 

What can I expect at application?  Give yourself the advantage.  Apply for a loan pre-approval before beginning your home search.  You may be asked to provide documents or letters that verify any income you want to use for loan qualification.  You will confirm your down payment and closing cost amounts in bank accounts or other asset accounts.  Your mortgage consultant should go through your credit report with you to make sure all items showing up are being reported correctly. 

What comes next?  After application, your mortgage consultant will keep in contact with you to let you know how the process is moving along or if there is additional information required for approval.  Your file will then go through processing, underwriting, and then to closing.  Your mortgage consultant should call you before closing to go over the final costs and funds required to close, if any.

Now you are Ready!  You can now approach your first home purchase as an educated consumer.  Talk to your mortgage lender about key points:  Pre-approval programs, a copy of your credit report, down payment and closing cost options, interest rate, and mortgage program offerings.  Listen carefully to answers.  They'll help you choose the program that is right for you, your needs, and your goals.


Information provided to you by Angie Gerhardson, Personal Mortgage Consultant with Homestead Mortgage Corporation.   To get mortgage information or view my mortgage calculator, please click here.



Comments (8)

William Johnson
Retired - La Jolla, CA
Retired Real Estate Professional
An excellent post and one that many will find very useful. I have book marked it for future reference. Thanks for the great information.
Jul 18, 2007 04:34 AM
Lorinda Ward
Keffer Realty - Norfolk, VA
Serving, Hampton Roads Virginia. Norfolk, Chesapeake, Va Beach
I love my first time home buyers, I am actually working with one now this blog is great I keep going over this same information with them.  Thank You
Jul 18, 2007 04:40 AM
Angie Gerhardson
Luminate Home Loans, Inc. - NMLS# 150953 - Isanti, MN
Helping YOU Realize your Dream of Homeownership!
 William - Thanks for the uplifting comment!  You even bookmarked it??  Wow!  I feel so........what's the word I'm looking for..........proud!  Thank you.
Jul 18, 2007 04:41 AM
Angie Gerhardson
Luminate Home Loans, Inc. - NMLS# 150953 - Isanti, MN
Helping YOU Realize your Dream of Homeownership!

Lorinda - I'm glad this could help you.  First time homebuyers are the BEST! 


Jul 18, 2007 04:43 AM
Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production
Wow...this is in depth.....I want to steal this post.  Great job.
Jul 18, 2007 05:25 AM
John Popp
Charlotte, NC

Post looks great - some good information

Jul 18, 2007 05:36 AM
Joe Adams
Major Mortgage USA/Branch Manager - Montrose, CO

Well Done and very helpful

Jul 18, 2007 07:23 AM
Rosemary Brooks
BMC Real Estate - 209-910-3706 - Stockton, CA
The Mother & Daughter Realty Team
Great post, thank you for the information.  Bookmarked and referenced.
Aug 17, 2007 02:26 PM