Buying your first home is an exciting milestone—but it can also feel confusing, especially when it comes to getting a mortgage. A mortgage is a loan you use to buy a home, and understanding how it works is key to making smart choices. If you’re a first-time homebuyer, this guide will help you learn the basics and feel more confident during the process.
Understand What a Mortgage Is
A mortgage is a loan from a bank or lender that helps you pay for a house. You agree to pay it back over time, usually 15 to 30 years, with interest. The home acts as the collateral, which means the lender can take it back if you don’t make your payments.
Know How Much You Can Afford
Before shopping for homes, figure out how much you can afford. Look at your income, monthly bills, and savings. Most experts say you should spend no more than 28–30% of your income on housing costs. Using an online mortgage calculator can give you a good idea of your budget.
Check Your Credit Score
Your credit score plays a big role in getting approved for a mortgage. A higher score means lower interest rates, which can save you money. If your score is low, work on improving it before applying by paying down debt and making payments on time.
Get Pre-Approved
Getting pre-approved means a lender has reviewed your finances and agreed to lend you a certain amount. It shows sellers you’re serious and ready to buy. Pre-approval can also help you stay within your budget when house hunting.
Explore Different Loan Types
There are several types of mortgage loans. Fixed-rate loans have the same interest rate for the entire term, while adjustable-rate loans may start lower but can change over time. First-time buyers may also qualify for FHA or VA loans, which often have lower down payment requirements.
Save for a Down Payment
Most lenders expect you to pay a portion of the home’s cost upfront. While 20% is standard, many loans allow lower down payments. The more you can put down, the less you’ll have to borrow—and the lower your monthly payment will be.
Understand Closing Costs
Closing costs are extra fees you pay when the loan is finalized. These can include inspections, taxes, and lender fees. They usually range from 2% to 5% of the home’s price, so it’s important to plan for them in your budget.
