4 Tips for Getting Your First-Ever Mortgage as a First-Time Buyer

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Buying your first home can be a financial challenge. Read on for some tips to get the right mortgage. 

First-time buyers not only need to find a property to purchase. They also need to navigate the process of getting a mortgage.

This can be more complicated than you’d think, especially since a mortgage loan is a major financial commitment and you want to make sure you get the best and most affordable loan possible.

To help you maximize your chances of getting the right mortgage loan, be sure to follow these four tips.

1. You may not need as big a down payment as you think

Many people who haven’t yet obtained a mortgage assume they will need a large down payment, but this isn’t always true. In fact, the National Association of Realtors reports the average down payment for first-time buyers has ranged between 6% and 7% since 2018.

Ideally, you will have a down payment of at least 20% when you buy your first home, mainly because you can often get a better rate on your mortgage and avoid paying for private mortgage insurance (PMI). PMI is an insurance policy that protects a mortgage lender in case of foreclosure by ensuring the lender doesn’t sustain out-of-pocket losses. But you’ll have to pay for it and it typically costs anywhere from 0.5% to 1.5% of the amount you’re borrowing.

If you feel like saving a 20% down payment is impossible, though, you don’t have to let this stand between you and your homeownership dreams. There are many mortgage lenders that allow loans with lower down payments, including some that specifically have first-time buyer programs designed to help you get into a home.

2. Your credit and debt will impact how much you can borrow

As you start to explore your options for getting a home loan, you should know that both your credit score and the amount of debt you have will affect the amount you can borrow as well as the rate you’re offered.

Lenders typically want you to have a credit score in the mid to high 600s in order to qualify for a conventional loan — and a score above 700 is even better. As for your debt, you’ll generally need to keep housing costs below 28% of your income and keep total debt payments (including your new loan) below 36%.

There are some lenders that will allow you to borrow if your payments exceed these ratios, but you may not get the best terms. So, aim to get your finances in shape and meet these qualifying requirements before you apply for your first loan.

3. It’s crucial to avoid major life changes before applying for a loan

Mortgage lenders like to see that your income is stable and the amount of debt you have is also pretty stable. So, try to avoid making any major changes to your financial situation or your employment before you apply for your first home loan.

If you’ve recently changed jobs or your income has increased, it may be worth waiting a while and developing a solid income and employment history showing two years of stability before you apply for a home loan.

4. The bank may lend you more than you really should borrow

Finally, you should know that the bank typically lends you as much as it thinks you’ll pay back — which may be more than you should actually spend if you’re also working on accomplishing other financial goals.

Think carefully about how much is actually comfortable within your budget and don’t spend more than that amount on a house, even if your lender will allow you to.

By following these four tips, you can hopefully end up with the perfect mortgage as a first-time home buyer and enjoy jumping into the world of owning a place of your own.

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