What You Need to Know Before Applying for Your First Mortgage

Jan 14, 2022 | Mortgage

Buying a home is likely the most important financial decision you will ever make in your life. Unfortunately, it is also probably going to be the most expensive. This is why the majority of homebuyers rely on mortgages to finance their new homes.

Applying for a mortgage can be an extremely stressful and overwhelming process, especially if you are a first-time homebuyer who is not familiar with the home loan process. To make it easier, we’ve compiled a list of tips and tricks you can use to improve your chances of qualifying for a mortgage.


Best Mortgage Tips for First Time Homebuyers

Consult a Mortgage Advisor

Buying a home is not a spur-of-the-moment decision—it requires extensive planning. You need to know how much down payment you can afford and the monthly mortgage payments you are comfortable with to determine the lender and the type of mortgage you choose.

Before you even begin house hunting, find a professional mortgage advisor who can help you get your finances in order. This will allow you to clean up items on your credit and get the down payment amount ready in time to buy your dream home.

Whether you are self-employed or work for a corporate company, a mortgage professional will be able to help you find the best lending options based on your unique financial circumstances and needs.

Check Your Credit Report

For a first-time homebuyer, a healthy credit history is the best way to get a good deal on your home loan.

First, visit annualcreditreport.com, the only website authorized by federal law to provide free credit reports once a year. Take a close look at the report to check for any mistakes that could negatively affect your credit score.

Check your credit report at least six months before you start the mortgage application process, so you have enough time to find and correct any mistakes. If you find an error, submit a dispute with the credit agency as soon as possible. The agency is required to investigate and respond within 30 days of submitting a dispute.

You also need to look out for negative items that can harm your credit score, including delinquent payments, accounts in collections, bankruptcies, and too many credit inquiries. Though factual entries can’t be disputed, you can work on fixing them before applying for a loan.

Improve Your Credit Score

Your credit score is the most important factor in determining whether you qualify for a mortgage. It shows lenders your ability to make timely payments and repay the loan. Though your credit report does not contain your credit scores, you can easily get it online. In fact, several credit card companies provide your FICO score for free.

Most conventional lenders require a minimum credit score of at least 620. If you meet certain criteria, some government-backed loans will allow you to borrow with a score as low as 500. However, it is ideal to have a higher credit score as it influences the mortgage rates you qualify for.

Your FICO score is calculated based on various factors:

  • Payment History – 35%
  • Debt Owed – 30%
  • Length of Credit History – 15%
  • Credit Mix – 10%
  • New Credit – 10%

The best way to improve your credit score is to pay all your debts on time and in full. Also, avoid making any major purchases on credit or opening a new line of credit for a couple months before applying for a home loan as this could negatively impact your credit history and the amount of hard inquiries.

Thrive Lending Group
Close up of a calculator and house keychain lying on top of a mortgage application.

Reduce Your Debt-to-Income Ratio

A debt-to-income ratio is another important factor that determines how much mortgage you can afford. Your total recurring monthly debt divided by your gross monthly income in percentage is your debt-to-income ratio.

Lenders prefer debt-to-income ratios that are less than 36%, with no more than 28% of the debt going toward mortgage payments. In most cases, you can get a qualified mortgage with a debt-to-income ratio of up to 43%. Anything more than that will result in you not qualifying for the loan.

Paying off or restructuring your existing debt to reduce monthly payments is the best way to lower your debt-to-income ratio. This will free up more of your monthly income and allow you to afford more mortgage. Lowering your credit card spend can help reduce your monthly recurring debt and improve your credit score.

Make a Larger Down Payment

A higher down payment amount reduces your loan-to-value ratio and improves your chances of getting a mortgage as you now pose a lesser risk to the lender. In addition, increasing your down payment amount means you’re making smaller monthly payments over the lifespan of the loan. You also won’t be subjected to a mortgage insurance requirement if you put down a 20% of larger down payment.

Clearly, larger down payments can not only make it easier to get a loan but also allows you to save more money in the long run.

Start Planning Your Finances as Early as Possible

It is best practice to start financial planning at least a year before you start actively looking for homes to buy. As mentioned above, putting down more down payment allows you to borrow less and save more. Minimize unnecessary spending and pay off outstanding debt to ensure you meet the required debt-to-income ratio for the loan amount you want. Planning early also gives you enough time to gather all the paperwork you need to apply for a mortgage.

Get Pre-Approved

One way to limit stress when navigating the homebuying process is by getting a home loan pre-approval.

During the pre-approval process, a lender will look at your credit score, income, assets, and other financial details to determine how much you can borrow. This also saves you from having to sit through the mortgage evaluation process after you’ve made an offer.

Moreover, pre-approvals show sellers that you are serious about your offer and have the finances needed to complete the sale. In cases where there are multiple offers on the same property, a pre-approval letter can tilt the deal in your favor.


At Thrive Lending Group, we are always ready to answer any questions you may have about homebuying process. If you want to get a mortgage pre-approval or learn more about your home loan options, contact us today!