Mortgage 101: What First-Time Homebuyers Need To Know?

Thinking about buying your first home is both exciting and a little scary. Even if you are confident about buying your first home, there is a chance you may not be sure where to begin. Since buying a home is the biggest purchase one ever makes, these feelings can cause stress and confusion. 

Navigating the mortgage process for the first time might be daunting. However, this doesn't mean you can't gain confidence as a first-time homebuyer. Yes, you can by knowing the elements that affect your mortgage. To help you feel more in control, here is your ultimate home loan guide for beginners. 

Understanding Mortgage 

The loan used to purchase a home is called a mortgage. With a mortgage, you can borrow a sizable sum of money and repay it over an extended period at a low interest rate. However, you can only purchase, refinance or upgrade a home with the money you borrow via a mortgage. 

When to Lock in a Mortgage Rate? 

The outstanding house loan portfolio in India at the end of FY-21 was a staggering ₹22.4 lakh crore, up 12.1% from its level in FY-20, as per the sources. Wondering when you should lock in a mortgage rate? Since mortgage rates might vary every day, it is important to get a decent deal when you find it. 

Remember that a rate quote does not equate to a rate lock. Rate locks that last 30 days are the most popular, and they usually provide extensions of up to 60 days.  With a rate lock, you may fix your mortgage rate for a specific period. This helps you understand exactly how much you'll pay if you buy a house within that time. 

Mortgage Tips for First-Time Home Buyers

According to research, up to 80% of homebuyers buy a home by taking out a home loan. Are you planning the same? Well, to make the process easier from start to finish, here are some first-time homebuyer mortgage tips:

1. Evaluate Your Budget 

The first thing most of us do before purchasing a home is go through real estate listings. However, before finding an ideal house, one should assess their financial situation first. This helps them to see whether they can afford to pay back the house loan's equivalent monthly installment (EMI). So examine your savings to determine whether you have enough for a down payment. If you don't have adequate emergency funds, don't think about getting a house loan.

2. Save Early

Another tip is to start saving early. Think about your short-term and long-term needs. You wouldn't want to feel pressured to spend out of your comfort zone. So, establish a price range depending on your budget and then adhere to it to prevent future financial strain. When saving for a home, keep the following major upfront expenses in mind: 

• Your down payment requirement

• Closing costs for your mortgage

• Move-in budget

• Immediate emergencies

Figuring out how much you can save will help with setting a price. Of those who obtained a mortgage for their first home purchase, more than half, 54%, received only one loan offer. 

3. Check Your Credit Score

Since your credit score will influence the interest rate that lenders will offer you, make sure you are eligible for a mortgage. This includes improving your credit score because a better score will result in a lower interest rate. To polish your credit score for buying a home, follow these first-time homebuyer mortgage tips:

• Get your credit reports

• Pay bills on time  

• Keep your credit card balance low

• Do not open new credit accounts when applying for mortgages 

• Don't close your current credit cards 

• Keep track of your credit score 

4. Explore Mortgages

These days, there are many mortgage options with different eligibility requirements and down payments available. Besides, you also have choices for the mortgage term. The majority of homebuyers choose a 30-year fixed-rate mortgage, which has an interest rate that remains constant and is paid off in 30 years. However, if you'll only stay in the home for a few years, then opt for an adjustable-rate mortgage. 

5. Compare Rates and Fees

Following the home loan guide for beginners, another tip is to compare rates and fees. Make plans to compare 3 to 5 quotations from various mortgage providers. This will help to save a huge amount in interest throughout the loan. Besides, if you have the funds and intend to remain in the house for a long time, purchasing points would be a smarter choice. 

6. Consider Your Budget

As a first-time buyer, it is natural to feel happy and excited about owning a new home. But remember not to get swayed by the property's flashy exterior and interior design. There's no need to purchase a home that exceeds your means. Instead, pick a property that is affordable and has enough amenities. This way, you'll not only meet your needs but also won't have to worry about breaking the bank when you pay the EMIs. 

7. Gather Documents

Before approving your mortgage application, your lender will request financial records from you. This is done to confirm your income, assets and debt. These records may include:

• Proof of income and employment 

• Bank and retirement statements

• Brokerage accounts 

• Debt payment records 

• Other documents

To stay organised throughout the process, gather these documents in advance. You'll need them for both the loan application and a mortgage pre-approval. If you lack confidence or knowledge, a wise decision would be to seek help from a home loan guide for beginners. 

8. Mortgage Pre-Approval 

A mortgage pre-approval is a lender's offer to lend you a certain amount under particular conditions. Obtaining this letter might provide you with an advantage over homebuyers who haven't done so yet. It demonstrates to real estate brokers and sellers that you are a serious buyer. So, make sure to apply for pre-approval when planning to buy a home.  

Key Mortgage Terms in Tabular Form

Now that the mortgage process explained, here is a tabular representation of the key mortgage terms for your better understanding:

Make Your Biggest Financial Commitment Without Mistakes 

At Damani Consulting Services, we are a leading company in the real estate industry. Our team of competent real estate agents will search the market for properties that best fit your requirements. We will assist you with the closing and negotiation procedures as well as with first-time homebuyer mortgage tips. 

We understand how difficult and confusing it can be to find the ideal home for the first time. Keeping this in mind, our friendly experts will guide you in everything, whether you want a mortgage process explained or anything. We are ready to walk the extra mile for you and take away the burden from your shoulders. For more personalised assistance or any questions, you can contact us today.