In Focus – SCCCU Blog

Buying your first home is a big milestone—equal parts exciting and overwhelming. One of the most important steps in making it happen is applying for a home loan (also called a mortgage). While the process can feel like a mystery at first, knowing what to expect and preparing ahead of time can make it much smoother.

Here’s your step-by-step guide to getting mortgage-ready without the stress.

Step 1: Know What Lenders Are Looking For

Before you even fill out an application, it helps to understand what lenders want to see. Generally, they’ll take a look at the following:

• Credit history: Shows your track record with borrowing and repaying money.
• Income stability: Confirms you can handle monthly mortgage payments.
• Debt-to-income ratio (DTI): Compares your monthly debt payments to your income.
• Down payment: How much you can put toward the purchase price up front.
• Property details: The home itself will be appraised to ensure it’s worth the loan amount.

Think of it as the lender’s way of asking: “Can you afford this home, and will you reliably pay us back?”

Step 2: Get Your Financial House in Order

Before you start touring dream homes, focus on strengthening your loan application. Take a look at the things you should consider in this process:

• Check your credit score. You can get a free copy of your credit report from each of the three major bureaus once a year at AnnualCreditReport.com.
• Pay down debt. Aim to keep your DTI under 36%. A lower DTI tells lenders you have room in your budget for a mortgage, which can improve your chances of approval. Paying down credit card balances not only helps you get there—it can also give your credit score a healthy boost.
• Save for a down payment. Many first-time buyers aim for 3% to 20% of the home price. The more you put down, the smaller your loan (and monthly payment) will be.
• Build an emergency fund. Lenders like to see that you have a cushion for unexpected expenses.

Step 3: Gather Your Paperwork

When you apply, lenders will review your financial circumstances. Having these documents ready can save time:

• Pay stubs (usually covering the last 30 days)
• W-2 forms from the last two years
• Tax returns from the last two years (especially if you're self-employed)
• Account statements (usually the last two or three months)
• Proof of other income (e.g., bonuses, alimony, rent income, etc.)
• Government-issued photo identification (such as a driver's license or passport)

Pro tip: Scan or upload these to a secure folder so you can share them instantly when asked.

Step 4: Get Pre-Approved

A mortgage pre-approval is like a golden ticket. It tells sellers you're serious and gives you a clear price range for your home search. During pre-approval, the lender reviews your finances and gives you a conditional commitment for a specific loan amount.

Step 5: Understand Your Loan Options

Not all mortgages are created equal. First-time buyers often explore different types of loans available. Let's take a brief look at each:

• Conventional loans. These are the typical loans you find at a financial institution. They require good credit and may have lower rates with a larger down payment requirement.
• FHA loans. Backed by the government, these loans allow for lower credit scores and smaller down payments, usually as low as 3%.
• VA loans. For eligible veterans and service members, financing is often available with no down payment required.
• USDA loans. For rural and some suburban homes, these loans offer low or no down payment options.

Talk to your lender about all the options available, and don’t be afraid to ask plenty of questions. Make sure you leave with a clear understanding of which loans fit your financial situation best.

Step 6: Be Ready for the Appraisal and Inspection

Once your offer is accepted, the lender will arrange an appraisal to confirm the home’s value. You’ll also need a home inspection to identify any repairs or issues before closing. If you have a real estate agent, they’ll typically handle these steps for you or connect you with the right professionals.

Step 7: Keep Your Finances Steady Until Closing

From the time you apply until you get the keys, avoid making any big financial changes, such as opening new credit cards, financing a new car, or changing jobs (unless absolutely necessary). Any significant shift could impact your final loan approval.

Step 8: Closing Day

On closing day, you’ll sign a lot of paperwork, pay your down payment and closing costs, and finally, get the keys to your new home! It’s a good idea to review the closing disclosure beforehand so there are no surprises.