Written by Louis DeNicola
Published Aug 01 | 17 minute read
Buying your first home is an exciting milestone—and one of the biggest financial decisions you’ll ever make. It’s exciting, but let’s be real: Navigating the mortgage process for the first time can feel overwhelming. From understanding loan options to budgeting for costs you didn’t even know existed, there’s a steep learning curve.
The good news? You don’t need to figure it all out in one sitting. This guide breaks down the essential steps to getting your first mortgage, so you can feel more prepared, less stressed and confident in every decision you make along the way.
Unless you’ve recently won the lottery, you’re probably not buying your first home with a suitcase full of cash. That’s where a mortgage comes in.
A mortgage is a type of loan used to purchase property. What makes it different from other loans—like a personal loan or auto loan—is that it’s secured by the home itself. That means your house acts as collateral: If you don’t keep up with the payments, the lender can foreclose on the property and sell the home to recover their money.
That sounds intense, but it’s how millions of Americans afford to buy homes. Understanding this up front helps you see a mortgage not as a trap, but as a financial tool that, when used wisely, can open the door (literally) to long-term stability and wealth building.
You may qualify for various types of mortgages. Before narrowing in on one choice, compare your options and assess the pros and cons of each.
The common options are:
Before applying for a mortgage, take a close look at your financial picture. Lenders will evaluate several factors to decide how much they’ll lend you and the loan’s interest rate, but three are especially important:
In general, a larger down payment, higher credit scores and lower DTI can help you qualify for the best offers.
READ MORE: What Is a Credit Score and Why Is It Important?
Many people focus on how much they should save for their down payment, but it’s not the only cost to consider. Other homebuying expenses can sneak up on you if you’re not prepared:
Once you own a home, your monthly budget will likely look very different from when you were renting. Yes, you will now have a mortgage payment, but also be ready to pay for:
As a general rule, some financial experts and lenders suggest keeping your monthly housing expenses under 28% of your gross income and your total debt (including housing, car loans, credit cards, etc.) under 36%.
As a first-time buyer, you don’t need to have all the answers, but it helps to know the landscape. Most loans fall into two categories:
In general, an ARM might offer a lower rate than a comparable fixed-rate loan. However, a fixed-rate loan could be less risky if you’re unsure of your plans.
Many types of loans are available as ARMs or fixed-rate loans, including most conventional loans and government-backed options. But you don’t need to decide what type of mortgage you want to get at the start. Working with a loan officer or loan broker can help you determine which one could make sense based on your circumstances.
READ MORE: Fixed vs. Variable Interest Rates: What’s the Difference?
When you’re shopping for a mortgage, you’ll typically work with one of two professionals:
Both types of professionals can help you compare different offers and types of mortgage loans, and there are pros and cons to working with loan officers and brokers.
For example, loan brokers can sometimes save you time by taking all your information and comparison shopping. But a loan officer might be in a better position to tell you about the lender’s down payment assistance programs or work with you to get through the lender’s underwriting process quickly.
At this point, you don’t have to narrow it down to a single choice. Compare offers from multiple loan officers and brokers to see who can get you the best deal, and whom you enjoy working with most.
Getting preapproved or prequalified for a mortgage can help you compare mortgage offers. Mortgage lenders sometimes use the terms differently, but prequalification is typically a quick estimate based on unverified information. In contrast, preapproval involves a thorough credit check and document review to provide a more accurate loan amount and interest rate.
Preapproval takes more effort up front, but it gives you a clearer sense of how much you can borrow and what your monthly payments might look like. Doing this early on can also give you time to improve your credit or financial situation to help you qualify for a better offer later.
A heads up: You may need to agree to a credit check, and the resulting hard inquiries could temporarily impact your credit scores. However, multiple hard inquiries for mortgage applications get treated as a single hard inquiry if they happen in a short period, such as 14 days. So try to group your applications within that time frame to minimize impact.
As you compare offers, pay close attention to whether the offer includes points or credits. Points are up-front fees you pay to a mortgage lender to lower your interest rate.
Conversely, credits are incentives from the lender that you can put toward your closing costs in exchange for accepting a higher interest rate. In either scenario, you can estimate the immediate and long-term costs to calculate your break-even point.
It’s time to start house hunting! Work with a real estate agent or look online for homes that fit your budget. If you look at sites like Zillow or Redfin, search for recently sold homes to see the actual purchase price instead of the listing price.
A real estate agent can also help you understand how things work in your local market. For example, in some areas, the buyers may have to waive contingencies and be preapproved to make a competitive offer. In others, sellers may be willing to offer concessions, such as covering some of your closing costs.
It’s easy to fall in love with a home that stretches your budget. Stay focused on what you can comfortably afford, not just what you can technically qualify for.
Once you find a home you like, it’s time to submit your offer. If the seller accepts, be prepared to move quickly. In addition to working through a checklist of to-dos with your real estate agent, you’ll work with your loan officer or broker to complete the loan underwriting process, which may include the following:
Technically, you can change lenders at any time before closing, which can be tempting if someone else offers you a better rate. However, underwriting may take several weeks, and you want to make sure you can close by the agreed-upon date.
Once your offer is accepted, the countdown to closing begins. This is where everything comes together, and where attention to detail matters.
During the closing, you can hire an inspector to look over the home and assess its condition. If the inspector finds undisclosed repairs or maintenance issues and you didn’t waive the inspection contingency, you’ll have to decide whether you want to go forward with buying the home.
Sometimes, this can give you leverage in negotiations, and you may be able to ask the seller to pay for the repairs or help you cover other costs. Similarly, you can do a final walk-through before closing and point out any changes or damage that occurred since you first made the offer.
If you want to back out of the deal and there aren’t any contingent conditions, you may have to forfeit your earnest money—a deposit you give the seller to show you’re serious about the purchase.
You can also try to negotiate some of your closing costs with your lender and the title company during closing, such as the cost for a credit report or appraisal. But you generally can’t negotiate pass-through costs, like local taxes or recording fees.
If everything goes according to plan, you’ll make the final payments and become the official owner of the home on the closing day.
There’s a lot to learn when you’re shopping for your first mortgage and home, and everything can feel complicated. But here are a few major tips to take away:
Buying your first home and getting your first mortgage can feel overwhelming at times, but you don’t have to figure it all out at once. Each step you take brings you closer to getting keys in hand.
Keep researching the details that are most relevant to your situation and know that it’s often a long process for first-time buyers. But with the right planning and support, you can set yourself up for success and become a confident homeowner.
You’ve got this! And when in doubt, just remember: One step at a time is all it takes.
READ MORE: First-Time Buyers in a New Kind of Housing Market
Louis DeNicola is a finance writer based in Oakland, California. He specializes in consumer credit, personal finance and small business finance, and loves helping people find ways to save money. He also writes for Experian, FICO, USA Today and various fintechs.