How to Get a Mortgage Loan for First-Timers

A report released by Bloomberg last year showed that millennials are delaying buying their first home. In fact, the average age of first-time homebuyers is now 34, giving more individuals and couples time to improve their credit and save for a larger down payment.

With first-time homebuyers making up around 30% of the market each year, there’s a large portion of people who are learning about mortgage loans for the first time. If you made it through college without having to take out student loans then this step in the home buying process can feel a little daunting. That’s what we’re here for.

How to Look for a Mortgage Loan

One of the biggest mistakes that first-time homebuyers tend to make is only researching loan quotes with one lender. Instead, we recommend checking out loans on a marketplace. Take your time to shop around and compare rates, ensuring that you’re getting the best price possible.

If you’re having trouble finding a lender, look at first-time homebuyer programs that are available to you, which include:

  • FHA loans (available for those with lower credit scores and a low down payment)
  • Fannie Mae or Freddie Mac loans (great for those with excellent credit as you’re only required to pay a 3% down payment)
  • Local first-time homebuyer programs (check with your state or local governments to enquire about grants or loans for first-time buyers)

If you’re going to go the traditional route, you’ll likely be looking for a fixed-rate mortgage loan. Currently, fixed-rate interest rates for mortgage loans are at an all-time low, with 30-year mortgage loans coming with a 2.99% interest rate.

Fixed-rate mortgage loans, however, are often the hardest to get as they require that you have excellent credit, including a low debt-to-income ratio, and a larger down payment. If you can’t pay at least 20% of the home value in a down payment, you’ll also be expected to pay for private mortgage insurance.

What to Know About Credit & Mortgage Loans

As you can see, credit plays a crucial role in your ability to get a mortgage loan. This is because your credit score is an indicator to lenders that you’re responsible with the money that you borrow. They want to see, above all else, that you’re able to pay back other loans on time and that you don’t have any major delinquencies or issues on your credit report that make you appear to be high-risk as a borrower for a mortgage loan.

Want to learn how to get a mortgage loan as a first-time homebuyer? Really focus on building your credit before you ever apply for the loan. This includes:

  • Having a good mix of accounts (an auto loan, a credit card, etc.)
  • Paying your bills on time (always!)
  • Don’t take out new loans shortly before applying for the mortgage loan
  • Avoid opening new credit cards as well
  • Keep balances below 30% of your credit limit

First-Time Homebuyer Mistakes to Avoid

Purchasing a home isn’t something we learn in school, so it’s easy to make a few mistakes your first time around. Often, the biggest mistake is searching for a home before you shop around for a mortgage loan. There’s no sense in falling in love with a home that you can’t afford because you’re denied for all loans for that amount. Instead, get pre-approved for a mortgage loan, and then conduct your search accordingly.

However, getting pre-approved for a loan requires you to take a look at your credit and your savings. Well before you’re ready to take out a mortgage loan, you should be working on building your credit. While first-time homebuyers can usually get a mortgage loan with a credit score of around 600, you’ll receive better (lower) interest rates on the loan if your credit is better.

While you’re building your credit, be sure to also work towards bulking up your savings. You don’t want to drain your savings in order to pay the down payment for your dream home. Instead, plan ahead and work towards a specific number. Ideally, this should be 20% of the home’s value as down payments of this size don’t require mortgage insurance and that’s where you’re going to save more in the long run.

Preparing to Apply for a Mortgage Loan

Is it pretty obvious by now that in order to prepare for a mortgage loan, you’re going to have to dedicate a bit of time to increase your credit score? We can help you with that. Float is a tool you can use to not only track your credit score over time but also provides you with helpful insight into what’s working and what you can improve.

If you’re applying for the loan with your partner, you can share your credit score with each other to see where each of you is at. Celebrate in their wins and encourage them to keep going until you both have credit scores that you feel comfortable with according to the loan you’re applying for.
Then, when it’s time to apply for the loan, check out our loan marketplace. We’re here for you every step of that way, from credit monitoring to loan quotes.

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