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First Time Home Buyers: Mortgages 101

Buying your first home is arguably one of, if not the biggest, financial milestones in a person’s life. Doing your homework and understanding the process is vital to a successful home-buying experience. Read our comprehensive first mortgage guide and start your journey home today.

Want a mortgage partner that puts you first? Contact the mortgage experts at Union today.

What do you need before you get your first mortgage?

Financial requirements for a good mortgage rate 

  • Great credit – you can get approved with a score in the 600s but a score of 720 is what is needed to get the best rates
  • Money down – have enough for at least 20 percent down
  • Cash on hand – you want to be able to show that buying a home isn’t going to wipe out your bank account
  • Solid employment – most important after a credit score, the longer you are at a job, the better. Lenders typically want to see at least two years of tax returns

Documentation needed when applying for a mortgage

  • Social Security numbers and birthdays for all borrowers
  • 24-month residence history
  • 24-month employment history with name, number, and address of employer
  • Copies of pay stubs for last 60 days
  • Copies of W-2 forms for the last two years
  • Bank statements and investment statements for last two or three months
  • Evidence of the ability to secure homeowner’s insurance
  • Address of the property you are purchasing
  • Purchase agreement

Finding the loan that’s right for you

There are four common mortgage loans typically offered by institutions: Conventional, FHA, VA, and Jumbo. Each come with their own set of requirements and pros and cons. Find out which mortgage loan would work as your first mortgage.

Conventional Loans

A conventional loan is a mortgage that requires at least 20 percent down payment. This type of loan is ideal for someone who has enough money saved to cover the down payment and the closing costs.

FHA Loans

This type of loan is backed by the Federal Housing Administration. They require as little as 3.5 percent down if you and the property you are purchasing qualify. FHA loans can be ideal for buyers without a great deal of money saved up. However, because this loan doesn’t require 20 percent down payment, you will be required to pay the monthly private mortgage insurance (PMI). This will act as a security net in case of default.

VA Loans

VA Loans are available to qualified veterans and are guaranteed by the Department of Veterans Affairs. This type of mortgage requires little or no down payment.

Jumbo Mortgages

While not typically used for a first home, a Jumbo mortgage becomes necessary if you are financing more than conventional conforming loan limits. Due to the large loan amount, Jumbo loans have special restrictions and credit requirements.

Mortgage Rates Explained

When figuring out what repayment plan is right for you, it’s important to understand the difference between a fixed rate mortgage and an adjustable rate mortgage.

Fixed Rate Mortgage 

A fixed rate mortgage has the same interest rate for as long as you are paying down the loan. Even if interest rates go up or down, a fixed rate mortgage stays the same.

When to choose a fixed rate mortgage: This type of mortgage is usually the safer option for families who plan to stay in a home for many years.

Adjustable Rate Mortgage

An adjustable rate mortgage can go up or down based on the overall interest or market rate. It is possible to get an adjustable rate mortgage with an interest rate that is lower than a fixed rate mortgage. However, you risk the rate going up dramatically in a few years. Some adjustable rate mortgages can have a very low introductory rate for a few years and then it’s followed by a much higher rate.

When to choose an adjustable rate mortgage: This type of loan is meant for buyers who only plan on living in a home for a short amount of time, plans to refinance at a later date or wants to flip the home.

Stages of Mortgage Application

Pre-qualification: Before you even start shopping for a house, you can get a pre-qualification letter from your lender. The letter will tell realtors and prospective sellers that you should be able to afford a mortgage up to a certain amount. It’s not an approval for a mortgage and it’s optional, it just helps sellers have confidence in your ability to buy.

Pre-approval: Once you put in an offer on a home, you can get mortgage pre-approval. Submit a mortgage application and the bank will run your credit and research the home you want to buy. If it all checks out, they will give you pre-approval which means that if all conditions are met, the bank agrees to finance the home and you can begin the process of closing.

Closing: Finalize the mortgage and pay the closing costs. Remember that closing costs are on average around two to five percent of the purchase price of your home. Once you have paid and finished dotting the i’s and crossing the t’s – you become a homeowner.

Ready to Go Home?

If you’re ready to apply for your first mortgage, we can help! We are the home buying partners that put you first. We have tailored mortgage programs for first-time home buyers and offer client-focused service from first contact to closing.

Our mortgage benefits include:

  • Hassle free application process
  • Special programs for first-time home buyers with below average fixed rates
  • Conventional mortgages with as little as 3 percent down
  • 100 percent financing and low down-payment programs through VA, FHA, and USDA
  • Accessible and responsive mortgage professionals

Apply online today or stop by one of our 14 local branches and talk with us about the type of loan you need and how we can help you find the rate, term, and payment plan that’s right for you.

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