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

6 Simple Steps to Finance Your Dream Home

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 Southern Trust 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

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: Compare Your Loan Estimates

Yay! Applying to more than one lender has paid off and given you options! (Hint Hint) Now use your Loan Estimate forms to compare terms and costs.

At the upper right corner of the first page, you’ll see expiration dates for the interest rate — find out if it's “locked” — and closing costs. Ask the lender to explain anything you don’t understand.

If the numbers seem dizzying, don’t focus too much on rate. Instead, look at the four numbers in the Estimate’s “Comparisons” section. These will allow you to easily compare offers.

Step 3: Choose a Lender and Commit

You’ve compared lenders’ rates and fees. Now assess their responsiveness and trustworthiness. 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

An underwriter’s job is to judge the risk of lending money to you on this property. What’s your loan-to-value ratio? Do you have the cash flow to make the monthly payments? How about your “credit character”? What’s your history of making payments on time? Is the home valued correctly, the condition good and title clear? Is it in a flood zone?

The likelihood of you being contacted during this step in the process is low, so just sit tight and wait for the best part of the mortgage journey!

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 you another federally required form, the Closing Disclosure, three business days before your scheduled closing date. It shows the detailed and final costs of your mortgage.

Examine the Closing Disclosure carefully to compare it against the Loan Estimate form to see if any of the quoted fees or numbers have changed.  If they have, ask the lender to explain.

This is the moment to decide if you want to go ahead. If you do, you’ve finished the mortgage application marathon and snagged your dream home!

Well done!

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 poor 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. An excellent 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 for 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.

Outro/CTA: Here at Southern Trust, we aim 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 proper 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.