Skip to main content
Advertiser Disclosure
We do receive compensation from some partners whose offers appear on this page. We have not reviewed all available products or offers. Compensation may impact the order in which offers appear on page, but our editorial opinions and ratings are not influenced by compensation.

Ascent-logo

  • Credit Cards
  • Banking
  • Brokerages
  • Loans
  • Mortgages
  • Knowledge
  • Latest Picks
  • Search Icon Click here to search

Credit Cards

Top Picks
  • Best of April 2021
  • Cash Back
  • Balance Transfer
  • Travel
  • 0% APR
  • Rewards
  • Bad Credit
Knowledge
  • Beginners Guide to Credit Cards
  • How to Rebuild Your Credit
  • Maximize Your Credit Card Rewards
  • Learn More About Credit Cards
Credit Card Tools
  • Compare Cards
Looking for a new credit card?

Explore the best credit cards in every category as of April 2021.

Get started!

Banking

Top Picks
  • Best Savings Accounts
  • Best Bank Accounts
  • Best Money Market Accounts
  • Best CDs
  • Best Checking Account Bonuses
Knowledge
  • Beginners Guide to Banking
  • Everything You Need to Know About Savings
  • Money Market Accounts Made Easy
  • Learn More About Banking
Looking for a place to park your cash?

Check out our top picks of the best online savings accounts for April 2021.

Get Started!

Brokerages

Top Picks
  • Best Brokers of April 2021
  • Best Online Brokers for Beginners
  • Best Options Brokers
  • Best IRA Accounts
  • Best Roth IRA Accounts
  • Best Robo Advisors
Knowledge
  • How to Open a Brokerage Account
  • Beginner's Guide to Brokerages
  • Learn More About Brokerage
Just getting started?

Explore our picks of the best brokerage accounts for beginners for April 2021.

Get Started!

Loans

Top Picks
  • Best Loans of April 2021
  • Best Personal Loans for Bad Credit
  • Best Loans for Debt Consolidation
  • Best Low-Interest Personal Loans
  • Best Personal Loans for Good Credit
  • Best Personal Loans for Fair Credit
Knowledge
  • Personal Loans Made Easy
  • Debt Consolidation Guide
  • How to Pay Off Debt
  • Learn More About Loans
Thinking about taking out a loan?

Before you apply for a personal loan, here's what you need to know.

Get Started!

Mortgages

Top Picks
  • Best Mortgage Lenders of April 2021
  • Best Mortgage Lenders for Poor Credit
  • Best Refinance Lenders
  • Best VA Mortgage Lenders
Knowledge
  • First Time Homebuyers Guide
  • Home Loans Made Easy
  • The Complete Guide to Refinancing
  • How to Get a Mortgage with Bad Credit
  • Learn More About Mortgages
Tools & Calculators
  • Mortgage Calculator
Compare Rates
  • Today's Mortgage Rates
  • Refinance Rates
  • 15-Year Mortgage Rates
  • 20-Year Mortgage Rates
  • 30-Year Mortgage Rates
  • Jumbo Mortgage Rates
  • VA Loan Rates
  • 5/1 ARM Rates
  • 7/1 ARM Rates
  • FHA Mortgage Rates

Knowledge

Knowledge Section
  • All Articles
  • Credit Card Articles
  • Banking Articles
  • Brokerage Articles
  • Personal Loan Articles
  • Mortgage Articles
  • Personal Finance Articles
Recent Articles
  • You May Need to Amend Your State Tax Return for Your Unemployment Tax Break

    Personal Finance

    You May Need to Amend Your State Tax Return for Your Unemployment Tax Break
  • 3 Expenses I Have to Save for All Year

    Personal Finance

    3 Expenses I Have to Save for All Year
  • Over 11 Million Homeowners Could Save Big by Refinancing, Data Shows

    Personal Finance

    Over 11 Million Homeowners Could Save Big by Refinancing, Data Shows
  • 3 Reasons Dogecoin Is More Than a Meme

    Brokerages

    3 Reasons Dogecoin Is More Than a Meme
  • The Ascent
  • Knowledge
  • Mortgages

15 Mortgage Tips for First-Time Homebuyers

by Matt Frankel, CFP | Dec. 7, 2020

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

Man and kids dance around new home.

Image source: Getty Images

Your mortgage application will be much smoother if you follow these tips.

If you're in the market for your first home, the process may seem pretty daunting. Here are 15 things you should know that could save you thousands of dollars and minimize home buying regrets.

1. Know your credit score and what it means to your mortgage

Your credit score can make a big difference in how much home you can afford. MyFICO has an excellent calculator that demonstrates this point.

Let's say you're hoping to score a 30-year mortgage for a $200,000 house. You have a FICO® score of 650. With that credit score, you can expect to pay around $120,385 in interest (as of this writing) over the life of the loan. So you're basically paying $320,385 for a $200,000 house.

But let's say you raise your credit score to 680. Now, your interest costs will be significantly lower. You'll only pay about $95,194 in interest -- you've saved yourself $25,192.

Get $150 off closing costs with Better Mortgage

Get $150 off closing costs with Better Mortgage

This is one of the top lenders we've used personally to secure big savings. No commissions, no origination fee, low rates. Get a loan estimate instantly and $150 off closing costs.

Learn More

Having a higher credit score is like having an automatic mortgage discount. Before you start the home buying process, it can be a good idea to check your credit score. Then, take steps to boost your credit score.

2. Estimate how much you can borrow

Lenders generally use two different debt ratios to determine how much you can borrow.

First, your monthly housing payment (including taxes and insurance) should be no more than 28% of your pre-tax income. Use our mortgage payment calculator to estimate monthly payments for mortgages of different sizes.

Second, your total debt (including your mortgage payment) should be no more than 36% of your pre-tax income.

The ratio that produces the lower payment is what the lender will use. Many lenders have more generous qualification ratios, but these are traditionally the most common.

3. Don't overextend yourself

If you have a credit card with a $20,000 limit, that doesn't necessarily mean that you should spend $20,000 on purchases with the card. The same logic is true when it comes to mortgages -- just because you can qualify for a certain mortgage amount doesn't mean that you have to max out your budget.

Be sure that your new mortgage payment not only fits your bank's standards but your budget as well.

4. Get your documentation in order

When you apply for a mortgage, you'll need to document your income, employment situation, identity, and more. It can be a good idea to start gathering the necessary documentation before you walk into a lender's office.

To start, locate these documents:

  • Recent tax returns
  • Bank and brokerage statements
  • Pay stubs
  • W-2s
  • Driver's license
  • Social Security card
  • Marriage license (if applicable),
  • Contact numbers for your employer's HR department

5. Get a mortgage pre-approval before you start shopping

To be clear, you don't need a pre-approval to start looking at houses. But a pre-approval can be an extremely valuable shopping tool.

If you submit a pre-approval letter along with your offer on a home, the seller knows you're serious. The pre-approval letter shows you're not likely to run into trouble when obtaining financing.

6. How much of a down payment do you have?

The mortgage industry standard is a 20% down payment. However, you may be able to get a conventional mortgage with significantly less money up front -- as low as 3% of the purchase price in many cases.

Specialized loan types, such as VA and USDA mortgages require no down payments at all for those who qualify.

A higher down payment will lower your monthly housing costs. However, you can buy a home with a small down payment if necessary.

7. Closing costs don't have to add to your out-of-pocket expenses

Generally speaking, you can expect closing costs to be in the neighborhood of 2%-3% of your mortgage principal amount. So, on a $200,000 mortgage, you can expect a bill of up to $6,000 that must be paid when you get the keys.

However, it's perfectly acceptable to work seller-paid closing costs into your offer in order to reduce your out-of-pocket expense. In other words, if you want to offer $195,000 on a home, you can offer $200,000 and ask the seller to pay up to $5,000 in closing costs for you.

This can be an excellent strategy for first-time buyers with limited savings to improve their ability to get a mortgage.

8. Consider an FHA loan if your credit history isn't great

Typically, you'll need a minimum of a 620 FICO score to qualify for a conventional mortgage. But it can be difficult to qualify with a low credit score if your other qualifications aren't stellar.

An alternative to conventional mortgages is the FHA mortgage. This is designed for borrowers with qualifications that don't meet the standards of conventional lenders.

The downside is that FHA loans can be significantly more expensive each month. Nevertheless, they can be great resources for people who otherwise wouldn't be able to qualify for a mortgage.

9. Budget for mortgage insurance, if necessary

If you put less than 20% down on your mortgage, you'll probably have to pay private mortgage insurance, or PMI. Make sure you budget for this while mortgage-shopping.

Mortgage insurance rates can vary significantly. Rates depend on your credit, the length of your mortgage, size of your down payment, and other factors.

10. Shop around for a low rate

One common mistake among first-timers and repeat buyers alike is accepting the first mortgage that's offered.

A seemingly small difference in mortgage rates can save you thousands of dollars over the course of a 30-year mortgage. As long as all of your mortgage applications take place within a short time period, mortgage shopping won't hurt your credit. Check out our guide to shopping mortgage lenders for tips on how to get started.

11. Don't forget about smaller lenders

When you're shopping around, don't just check the big national mortgage lenders. Some regional or local banks may offer unique lending programs, especially for first-time homebuyers. For example, the young couple who bought a house from me a few years ago used a 100% financing program from Regions Financial that required no mortgage insurance for first-time buyers with outstanding credit.

12. Consider a 15-year mortgage

If you can afford high mortgage payments, or you're willing to buy a less expensive home, consider a 15-year mortgage. This type of mortgage can save you thousands of dollars in interest and can allow you to own your home quickly. Fifteen-year interest rates are about one percentage point lower than 30-year rates. You might be surprised how much the combination of a lower rate and shorter amortization period can save you.

13. Fixed or adjustable?

For the majority of homebuyers, a fixed-rate loan is the best choice. However, if you don't plan on being in the home you buy for more than a few years, an adjustable-rate mortgage could save you thousands of dollars in interest.

For example, if you're buying a home to live in during four years of graduate school, an adjustable-rate mortgage with a five-year initial rate period could be a smart idea.

14. Expect a few hassles before closing

In a perfect world, you could apply for a mortgage, have the home inspected, and show up at the closing table a month later to wrap things up. Sometimes that happens, but it's rarely that easy. More often than not, there are some hassles along the way.

When I was buying my first home, my lender called me three days before closing. My credit score had fallen to one point below the threshold for my interest rate. I was told I would either have to take an action that would improve my credit score immediately or accept a significantly higher interest rate. The solution required me to pay off one of my credit cards and fax proof of it to the lender -- not an impossible situation, but certainly a hassle.

15. After you apply, don't use your credit until you have the keys in hand

Continuing on my last point, it's a good practice not to use your credit for anything out of the ordinary between the time you're approved for your mortgage and when you actually close on the home.

Lenders will generally pull your credit at least twice -- when you originally apply and shortly before closing (as happened in my situation). If there are any significant differences between the two, such as a new account or a significantly higher debt balance, it could lead to delays and could even disqualify you for the mortgage. Just leave your credit alone until you've signed your closing documents.

A historic opportunity to potentially save thousands on your mortgage

Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase. 

The Ascent's in-house mortgages expert recommends this company to find a low rate - and in fact he used them himself to refi (twice!). Click here to learn more and see your rate. While it doesn't influence our opinions of products, we do receive compensation from partners whose offers appear here. We're on your side, always. See The Ascent's full advertiser disclosure here.

About the Author

Matt Frankel, CFP
Matt Frankel, CFP icon-button-linkedin-2x icon-button-twitter-2x

Matt is a Certified Financial Planner® and investment advisor based in Columbia, South Carolina. He writes personal finance and investment advice, and in 2017 he received the SABEW Best in Business Award.

Share This Page
Facebook Icon This icon shares the page you are on via Facebook
Blue Twitter Icon Share this website with Twitter
LinkedIn Icon This image links to share the page over LinkedIn.
Email Icon Share this website with email

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

Related Articles

"Rates" on a stick note on a house image for Find the Best Mortgage Rates

Find the Best Mortgage Rates

Cardboard cutout house on a desk image for Best Mortgage Lenders for 2021

Best Mortgage Lenders for 2021

Money bags and a model house sit on a balance beam image for Best Mortgage Refinance Lenders for 2021

Best Mortgage Refinance Lenders for 2021

Change on a desk image for Mortgage Payment Calculator

Mortgage Payment Calculator

Featured Articles

Find the Best Mortgage Rates

Best Mortgage Lenders for 2021

Best Mortgage Refinance Lenders for 2021

Mortgage Payment Calculator


The Ascent Logo

The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.

btn_facebook-yellow btn_twitter-yellow btn_instagram-yellow

Copyright © 2018 - 2021 The Ascent. All rights reserved.

About The Ascent
About Us Contact Us Newsroom How We Make Money Editorial Integrity Ratings Methodology
Legal
Terms of Use Privacy Policy Accessibility Policy Terms and Conditions Copyright, Trademark and Patent Information
Learn
Credit Cards Banking Brokerage Loans Recent Articles

By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.

Back to The Motley Fool