First-Time Homebuyers: How Do I Get a Mortgage?

A mortgage is a type of loan that is used to finance a home purchase and gives your lender the right to take your property if you fail to make your payments. Most homebuyers need to get a mortgage, unless you can pay for the full cost of the home out of pocket.

Julie Aragon, a trusted mortgage expert at Julie Aragon Lending Team, explains that getting a mortgage should always be your first step in the homebuying process: “Talk to a licensed loan officer (aka mortgage lenders) as soon as possible (definitely before you fall in love with a property) so you can understand how much you can qualify for and what types of up-front and monthly payments scenarios you'd be looking for at different purchase price points. If you're already using a real estate agent, get a recommendation from them.”

To qualify for a mortgage loan, certain eligibility requirements must be met, including having a good credit score (generally at least a 580), and a low debt-to-income ratio of less than 50 percent.

How does a mortgage work?

Like other types of loans, your lender gives you a set amount of money that you are required to pay back over a set period of time. In addition to your loan balance, you will also be required to pay interest on your loan, which will be determined in large part by your creditworthiness and how much of a risk you pose to your lender.

In most cases your home is used as collateral, meaning that the lender has the right to foreclose on your property if you miss a mortgage payment — foreclosure generally doesn’t occur until you’ve missed two or three consistent payments.

How do I get a mortgage?

Getting a mortgage can seem like a daunting process, but it really comes down to choosing the right lender and mortgage loan type for you. 

1. Check your finances

Because your mortgage interest rate and ability to qualify for a mortgage is reliant upon your creditworthiness, it is important to check your credit score. You may even need to work to improve it if possible, allowing you to get better rates and terms.

While there are mortgage options if you have bad credit, doing what you can to ensure that you have a healthy credit score could save you a lot of money in the long run. In most cases, you should strive to have a credit score of at least 700. 

2. Determine what you can afford

It is important to take stock of your finances, make a budget, and crunch some numbers so you know how much money you will need to buy a house, including a down payment and closing costs.

Ensuring that your finances are in order could save you time in the mortgage process, especially if you have an idea of what size down payment you can make. It can also provide you with peace of mind, knowing that your finances are in order and that you’re prepared to meet the costs of buying a home.

3. Build your savings

Buying a house is a large expense, and so it is likely that you have already built up your savings to make a down payment and pay closing costs. But, even beyond those expenses, you'll want to build up your savings so that you have some wiggle room if an emergency arises or you are met with more costs than you initially anticipated.

4. Choose a mortgage lender

There are a lot of different mortgage companies to choose from, so how do you pick one?

A good place to start is by comparing interest rates, fees, and down payments across lenders. 

Interest rates vary by loan type and term, but the average rate you will see across the industry is approximately 3 percent APR. Many lenders offer lower rates, such as AmeriSave with rates as low as 2.328 percent. The interest rate you will receive will be dependent on your credit score and current finances, so it can be helpful to pre-qualify with various lenders to compare the rates that you would get.

Many mortgage lenders have an application fee, loan origination fee, third-party fees, and other government processing fees. The cost of these fees may vary by lender, and some lenders may not have certain fees, and so it is important to do your own research to see what fees your top lenders have.

For a conventional loan you can generally make a down payment as low as 3 percent, but this will also depend on the lender that you choose.

In addition to typical mortgage factors such as rates and fees, we wanted to know what mortgage consumers were most concerned about in a mortgage lender. So, we took a look at the mortgage company reviews left on BestCompany.com. 

From these reviews, customers most often mentioned the following in their mortgage loan experience:

• 65% mention customer service
• 38% mention speed and efficiency in the overall mortgage process
• 20% mention transparency
• 16% mention interest rates

Customer service

For the majority of consumers leaving reviews, customer service is one of the most important aspects of the mortgage process. In many reviews, consumers name specific loan officers that they worked with, either describing positive or negative experiences. On many mortgage company websites you can search for loan officers to try and find the best fit for you and your needs.

Speed and efficiency

It takes an average of 30 days to process a mortgage loan application, but in many cases, this process can take a much longer amount of time, up to 60 days. But, consumers prefer companies that can process an application quickly and efficiently.

Transparency

In many negative mortgage company reviews, customers detail experiences in which companies were not transparent with costs — customers were hit with much higher costs at the close of the mortgage loan process than they were given at the beginning of the process.

Interest rates

It is surprising that mortgage consumers are quick to mention customer service, speed and efficiency, and company transparency before interest rates. Thus, it can be inferred that customers are more concerned about the overall experience of working with a company than rates and terms. However, this is still an important factor in the mortgage loan process, and consumers do want low rates.

5. Choose the right mortgage for you

Since mortgages aren’t “one size fits all” there are a variety of loan options available, allowing consumers to tailor their mortgage to their needs and finances:

• Conventional loan — The most common type of mortgage loan. A conventional loan isn’t backed by a government agency and is instead backed by a private lender. Generally, this loan type will require a down payment of at least 3%.
• Adjustable rate mortgage (ARM) loan — With an adjustable rate mortgage loan, your interest rate will vary throughout the loan. This means that your initial interest rate will be lower than with another type of loan, but that rate will fluctuate, raising and lowering your monthly payment as you’re paying off your mortgage.
• FHA loan — An FHA loan is backed by the Federal Housing Administration and accepts down payments as low as 3.5% with a credit score as low as 580. This loan type can be a great option for first-time homebuyers.
• VA loan — VA loans are offered by private lenders and are partially backed by the U.S. Department of Veteran Affairs. This loan type offers mortgages to military service members, veterans, and select military spouses with a 0% down payment.
• USDA loan — Only available to eligible rural homebuyers, a USDA loan is backed by the U.S. Department of Agriculture. This loan type offers low interest rates and a 0% down payment, but you must buy a home in a designated rural or suburban area.
• Jumbo loan — A jumbo loan is used to finance expensive properties that exceed the limits of a conventional loan.

This list is not exhaustive, and it is important to note that not all lenders offer all loan types. But, the lender you choose to work with will be key in helping you know which loan type will best fit your needs.

6. Get pre-approved for a mortgage

Mortgage pre-approval is a preliminary evaluation by a lender to determine whether or not a borrower is eligible for a mortgage loan. If you are pre-approved, the lender will provide you with a letter, which will be necessary to have when you’d like to place an offer on a house. In general, it takes 1 to 3 days to receive a pre-approval letter.

7. Go house hunting

When you’re ready to start the house hunting process, it will be important to find a real estate agent. While you can buy a home without using an real estate agent, it is recommended to use one to simplify and help throughout the house hunting process.

"Real estate agents take a bigger responsibility with the whole process in buying a house. When you are a first-time home buyer it is best to ask for assistance from real estate agents since they will make your home hunting easier," says Ben Singh, Owner/Founder of SEEB Homes. "They will be alert for issues that might not cross your mind when buying a house and they will address it quickly. It will save you a lot of time and money since they can give you researched, current, and reputable data regarding a neighborhood's demographics, crime rates, schools, and other important factors."

8. Close on a home

Once you’ve found the home of your dreams, it’s time to close — transfer the ownership of the home from the seller to you, the buyer.

If you have a real estate agent, they will take care of the majority of the closing process. But, this process generally includes getting a home inspection, renegotiating the home sales prices, if necessary, completing your mortgage application, getting homeowners insurance, and then signing on the dotted line of the closing documents.

Who are the top mortgage lenders?

We took a look at customer reviews for the top-rated mortgage companies on BestCompany.com, and we noticed that customers most often outlined sentiments and experiences with customer service, the overall loan process, and interest rates. 

Keep reading for a breakdown of customer reviews for each company.

AmeriSave Mortgage

AmeriSave Mortgage was founded in 2002 and has funded over $55 billion in home loans and has been trusted with over 280,000 homes.

As the top-rated mortgage company on BestCompany.com, 87 percent of AmeriSave Mortgage reviews are 4 or 5 stars.

From these positive reviews, we gained the following insights*:

• 59% of customers mentioned positive experiences with customer service. Loan officers were professional, knowledgeable, and quick to respond.
• 42% of customers mentioned that AmeriSave’s loan process was fast and easy. In addition, 21% of customers specifically noted how they appreciated that the AmeriSave loan process was almost entirely done online.
• 23% of customers mention low and competitive rates.

*Data and insights are taken from a sample of 100 AmeriSave Mortgage reviews.

Learn more about AmeriSave Mortgage

New American Funding

New American Funding was founded in 2003 and has funded over $33.6 billion in over 137,000 home loans.

Ninety-nine percent of New American Funding reviews are 4 or 5 stars.

From these positive reviews, we gained the following insights*:

• 82% of customers mention positive experiences with customer service. Customers were able to receive personalized help quickly and loan officers were reliable and knowledgeable.
• 35% of customers mention how fast and easy the New American Funding loan process was from application to close.
• 16% of customers mention low and competitive rates.

Speaking to these points, and especially to providing exceptional customer service, Rick Arvielo, New American Funding cofounder and CEO, states: “New American Funding considers itself to be a family, and our clients are part of the family too. We believe in developing industry-leading technology and combining it with unparalleled customer service to create the best possible mortgage experience for our borrowers. That philosophy has led our company to become one the nation’s largest and most respected lenders.”

*Data and insights are taken from a sample of 85 New American Funding reviews.

Learn more about New American Funding

NBKC Bank

NBKC Bank was founded in 1999 and offers a full suite of traditional banking services. The company has a top-ranked mortgage program and offers discounts to Costco members and home loan savings for all.

Ninety-eight percent of NBKC Bank reviews are 4 or 5 stars.

From these positive reviews, we gained the following insights*:

• 89% of customers outline positive experiences with customer service. The majority of reviews mention specific loan officers by name and that customers felt like they were receiving prompt and personal care.
• 50% of customers mention how fast and easy the NBKC Bank loan process was from application to close.
• 14% of customers mention low and competitive rates. In addition, customers also frequently mention low fees and closing costs.

*Data and insights are taken from a sample of 100 NBKC Bank reviews.

Learn more about NBKC Bank

 

Expert contributors:

Julie Aragon, mortgage expert at Julie Aragon Lending Team.

Andy Kolodgie, owner of The House Guys.

Sundance Brennan, Branch VP of Training and Sales at American Financial Network, Inc.

Ben Singh, owner/founder of SEEB Homes.