Applying for your first mortgage

Applying for your first mortgage can be a daunting task. You’ve saved up a down payment and you’re ready to purchase your first home, but first you have to complete the mortgage application process and receive approved for a loan. A number of steps come before you even fill out the application.

First Things First

The first thing you should do is pull your credit report and check it for any dings or inaccuracies. If you have any sort of bad marks on your report you will need to get them cleared up before you apply. Lenders are very hesitant to lend to anyone with less than stellar credit in the current environment.

Next, familiarize yourself with the mortgage process. Getting prequalified does not mean you gave a loan approval. It means that, based on the information you submitted, the bank should be able to approve the loan. The application goes to a mortgage processor who verifies all of the information, then to an underwriter who decides whether to approve the loan. Once approved, you will have to submit more documents, known as “conditions to close.” Then the documents are prepared and you can sign the paperwork.

Be Prepared

The amount of documentation you will have to submit is extensive. It includes W2s, bank statements, proof of address, social security numbers and more. You should gather all of these documents in advance so you won’t have to go hunting for them at the last minute.

Understand Loan Terminology

You should also understand basic mortgage terminology. There are several different types of loans. An FHA loan, for example, is a mortgage insured by the Federal Housing Administration. It is for first-time homebuyers and requires only a three percent down payment. A VA loan is a loan from the Veteran Administration made to veterans and their spouses.

Conventional loans are standard 15 or 30-year loans, usually with a fixed interest rate. An adjustable rate mortgage, or ARM, has a fixed interest rate for a set number of years, but after that, the interest rate varies. In interest-only loans, the borrower pays only the interest for the first few years. After that time, the payments swell to include both interest and principle. Borrowers typically accept ARMs or interest-only loans when they can’t qualify for a traditional mortgage.

Points are another important matter. A point is prepaid interest; each point is equal to one percent of the loan amount, and for each point you pay, you get a reduction in the interest rate. This may or may not be a good deal, depending on the loan.

Fees to Consider

Fees for credit reports and other services vary widely from lender to lender, so look around. Closing costs are the fees required to close the loan, including appraisals and title searches. These also vary and can often be split with the home seller. Applying for your first mortgage is both exciting and scary. Make sure you understand what you are getting into and good luck!

Jessica Bosari writes about personal finance for TermLifeInsuranceNews.com. The site seeks to help consumers learn more about financial planning and term life insurance rates for greater financial security in the future.

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