How to Get Though the Loan Process Stress-Free as a 1st-Time Home Buyer – 6 Easy Steps to Follow when Applying for Your First Mortgage

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Buying a new home is a special experience and part of the American Dream and applying for a mortgage as a first time home buyer can be challenging. It also is a huge personal and financial step for most of us, and it is common to experience stress. But there are some simple steps to follow to make your first-time home buyer loan experience less stressful.

1st-time home loanUnderstand the 1st Time Home Loan Process

For a first-time buyer, it is common to feel stress because you do not understand how the loan process works. The good news for people seeking their first mortgage, the credit rules have been eased, income guidelines loosened and the down-payment requirements are minimal. If this is your first time getting a home loan, here are the basic steps of getting a mortgage without pulling your hair out:

  1. Financial self-assessment and preparing for application. This step includes making a budget, assessing your debts, credit, savings and preparing the documents you will need for the application. Do this before talking to a broker or mortgage lender.
  2. Applying for the home loan. You will submit the application to the lender and hopefully get pre-qualified; this is where you get a rough idea of what you can afford to buy, but your financial information has not yet been verified so this is a rough estimate only.
  3. Mortgage origination and processing. Loan file is created by assembling all financial data and documents. This is where the lender reviews your financial data and documents and states how much loan you qualify for, which is called a loan pre-approval.
  4. Underwriting: Your loan application is reviewed by a mortgage underwriter who will judge repayment risk after looking at credit, debt to income ratio and income.
  5. Satisfying all conditions for home loan: This step may require you to meet certain conditions before loan approval, such as provide more documents, clear a debt, etc.
  6. Closing: This is the final step in the home loan process where the loan is funded, and title is transferred to you.

Understanding the mortgage process is very important to lower your stress level and getting the first time mortgage approved and funded smoothly.

Plan Early

Being under a crunch for time can create much stress in the home loan process. Prepare for your mortgage process months in advance. You will need to have a lot of documents to be approved for a loan and these can take time to pull together.

Work on Your Credit

One of the reasons you want to work on the mortgage prep process well ahead of time is to ensure your credit is in good shape. You should get a copy of your credit report and find out what your credit score is. It is important to know if there are any black marks on your credit report, especially in the last two years. If you have anything on your credit report that is incorrect, you have time to contest it with the credit bureaus and get it removed. Learn more about first-time home buyer credit.

If you want a conventional mortgage, ideally you should have a credit score over 700. If your score is well under that, you can still get a home loan, but may need to consider FHA-financing.

You also should know what your debt to income ratios are. The front-end ratio is the total proposed monthly mortgage payment, including taxes, insurance and mortgage insurance if needed, compared to your gross monthly income. The back-end ratio is your total monthly debt load, compared to your gross monthly income. Generally, a debt to income ratio of 36% is ideal, but some lenders will allow you to go up to 41% or even 43%.

Plan a Budget

Having a good, clear budget will reduce your stress by a lot! Do this early. Your home budget should lay out what you can really afford, including the price of the home, taxes, fees, and all insurance costs.

Get started by mapping out your finances for each month. Write down what your gross monthly income is and monthly debts. When you get your budget figured out, be sure that you can comfortably afford your mortgage payment.

Spending too much can really create stress. You can often be approved for more home than you can really afford. You should have a sizable safety cushion left over each month for savings, repairs and the extra costs of life that always happen. Planning is prudent when considering a new home-buyer mortgage.

Understand Documents

There are many financial documents you will need to get a 1st-time home loan. Common documents that you will need during the mortgage process include:

  • Credit report
  • Mortgage application
  • Pay stubs for last month
  • W-2s from the last 2 years
  • Bank statements for last three months
  • Tax returns for last two years, especially if you are self employed
  • Documents for any long-term loans, such as student loans and car loans
rates for first time home buyers

Take advantage of aggressive lending and great pricing for 1st-Time Home Loans across the country.

Emerging Loan Programs for First Time Home Buyers in 2019

Are you considering your first home purchase this year or next? It is easy to be overwhelmed by all the mortgage choices. But there are some really good options to consider, and you do not have to have the best credit score out there to qualify, either. Here are some of the best current financing choices for first time home buyers:

HomeReady Mortgage from Fannie Mae

Fannie Mae has been on a mission in the last several years to make it easier to buy a home. With the HomeReady mortgage, it is easier than ever for the first-time buyer to stop renting and get a mortgage. Some of the best features of this mortgage are:

  • 3% down payment is possible if you want to conserve how much cash you put into the deal
  • Lower rates for private mortgage insurance; this is required on any mortgage with less than 20% equity in the property
  • Down payments may come from gifts and down payment assistance programs
  • Income from people not on the mortgage can be used to qualify
  • Income from people not on the mortgage but in the house can be used to qualify for income purposes
  • Boarder income, as in from a roommate, can help you to qualify
  • Rental income from a mother in law suite also can be used to qualify

As noted above, this program is very flexible with down payments. For most Americans, coming up with the down payment is the most challenging part of buying a home. This program only requires a 3% down payment, but where you get the money is very flexible.

Fannie Mae Loan Programs

This is another popular financing option for first time home buyers that have solid credentials. Fannie Mae products have always had a reputation for low closing costs and competitive interest rates. Ask about the Homepath loan when you speak with a loan officer. There are several mortgage programs backed by Fannie Mae, so do your homework to determine, which is the best

Mortgage Rates for First Time Home Buyers Remains Attractive and Lenders Are Slashing Closing Costs and Lender Fees!

Many other first-time buyer programs require you to have a certain amount of the down payment to come from you. Only after you have taken care of the minimum contribution can you get help from a gift or another source. But with HomeReady, all of the down payment can come from other sources than your personal finances. You also can get financial help from a down payment assistance program.

Another big plus of the down payment feature of the HomeReady program is that you can use cash on hand to make your down payment. If you prefer to keep your cash on hand rather than in a bank, you may have difficulty making a down payment with other programs. Other mortgage program will require you to have the funds sitting in a savings account for 60 days. But you can with this program get a loan with the cash you have in your home.

This Fannie Mae program also allows you to use a variety of income sources to qualify. You can of course use your regular income, which is your salary, commissions, bonuses and tips. But you also can use income of people in the home who are not even on the loan.

This feature of the program is a good fit for a multiple generational family under one roof, or where parents live with children in the same home. The non-borrower’s income has to be used as a compensating factor and not for qualification. This means that the lender will not add that person’s income to your personal income to approve the mortgage. Instead, the non-borrower income is considered as a possible reason to approve you even if your debt to income ratio is too high. The maximum DTI for this program is 45%, but if you have additional income from other sources in the home, this can be used to lower the DTI and get the loan approved.

There are income limits for the HomeReady program, however. For this program, the limits are set per the geographic area. In an area that is underserved, there is not any income limit at all. But in areas that are wealthier, there is a limit to how much you can make. This ensures that the HomeReady program is used by people who most need it.

You can talk to your realtor and your mortgage broker about what the income limit is for this program in your geographic area.

You do not have to have a perfect credit score to qualify for HomeReady. The minimum score is only 620, so people with average to poor credit can qualify. A credit score of 680 or higher will get the best results. You will have more lenders to consider and a lower interest rate.

Note that all buyers who use this program have to complete a home buyer education course.

FHA Home Financing from the Federal Housing Administration

FHA mortgages are another very popular program for first time home buyers. This program is backed by the Federal Housing Administration so that people with average or poor credit can buy their own home. While FHA loans are not perfect, they are very good fits for many buyers. Here are some of the benefits:

  • You only need to put down 3.5%, and you need just a 580-credit score to qualify for this down payment. Of course, if you can, you should try to put down more as this will save you money on interest payments. You can use other people’s money to make your down payment, such as a gift from a family member.
  • You can get an FHA mortgage after a foreclosure or bankruptcy, if the event was two or three years ago.
  • There are no income ceilings, so you do not have to worry about making too much money to qualify.
  • Debt to income ratios are reasonable, with a 43% back end DTI being common. This means all of your debt payments each month cannot be more than 43% of your gross monthly income.

However, the FHA program is not for everyone. If you need to borrow more than the maximum allowed FHA-insured loan for your area, you cannot get an FHA mortgage. Also, FHA still requires mortgage insurance requirements that are not cheap. But this is a great program and is the program of choice for first time buyers with past credit problems. Do your homework before completing a FHA mortgage application online.

Military Home loans Backed by the VA

One of the great things our government has done for the military is guarantee the best home loan product. The interest rates are great and there is no down-payment required with VA home loans. There is also no mortgage insurance and minimal closing costs. Talk to an approved lender to see if you are eligible for VA loans as a 1st-time home buyer.

Know All Home Buyer Loan Options

The entire mortgage loan process is rife with big decisions. You have to know your budget, credit score, home you want to buy, which lender, and the type of loan you want – 30 year, fixed, 15 year, adjustable, etc. Just remember to have all of the above information figured out before you go to a lender. And, have a loan pre-approval in hand before you even START looking at houses. If you do these things, your mortgage process will be a lot less stressful!

About Bryan Dornan

Bryan Dornan is Chief Editor of Bryan has worked in the mortgage industry for over 20 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. Should you have any questions about articles like this, let him know.