Loan Process for First Time Home Buyers

You’ve finally decided to take the plunge into homeownership. However here comes the tricky part, navigating the mortgage loan process.

Between the piles of paperwork, strict deadlines, and confusing jargon, the whole ordeal can feel pretty overwhelming, especially if you’ve never gone through it before.

But don’t stress. We’re here to walk you through the major steps so you know exactly what to expect. By the end, you’ll feel like a pro and wonder what you were so worried about.

The key is staying organized, asking questions, and not being afraid to speak up if there’s something you don’t understand. You’ve got this! With the right knowledge and preparation, you’ll be well on your way to turning that house into a home before you know it.

Preparing for your first home loan

Check your credit score

Your credit score and report play a big role in qualifying for a home loan and the interest rate you’ll pay. Check your credit score and report for any errors. If needed, take steps to improve your score before applying for a pre-approval.

Get pre-approved

A pre-approval letter demonstrates to sellers your seriousness. Talk with one of our local mortgage brokers to go over your paperwork and select the right financing for you.

The maximum amount the lender will grant you will be determined after checking your credit and confirming your income and spending.

Find a property

Now you can start house hunting! Look for homes in your pre-approval price range. Once you find “the one”, the lender will conduct an appraisal to confirm the property value supports the loan amount.

Finalise paperwork

If approved, you’ll sign official paperwork like the loan application, promissory note, mortgage, or deed of trust. The lender will schedule a final walk-through of the property and a closing date to sign the remaining papers and get the keys!

Applying for a mortgage

After choosing a lender and loan type, you’ll complete an application providing information on your income, employment, assets, and debts. The lender will evaluate your application and credit to determine if you qualify for the loan amount you need.

If approved, the lender issues a pre-approval letter stating the maximum amount you can borrow. This helps as you view homes and make an offer. A home inspection and appraisal are required to finalise the lending approval.

Closing on your new home

Closing is the legal process where you sign official paperwork to obtain the property title and keys. It typically happens 4 to 6 weeks after your offer is accepted. Your down payment and closing costs are due at closing.

Tips for first time homebuyers on managing their mortgage

As a first time homebuyer, the mortgage process can feel overwhelming. Here are some tips to help you manage your mortgage responsibly:

Make a budget

Sit down and create a budget for your monthly housing costs before you start house hunting. Factor in your down payment, mortgage payment, taxes, insurance, utilities, and any homeowners association fees.

Leave room for unexpected costs like repairs or renovations. Stick to a budget you can afford—as a guide, your mortgage payment should be no more than 28% of your monthly income.

Choose The right mortgage

Meet with one of our mortgage lenders to explore your options. For first timers, a fixed-rate mortgage is usually the most stable choice. Adjustable-rate mortgages often start with a lower interest rate but can increase over time. Compare offers from multiple banks to get the best overall deal. Ask about interest rates, loan terms, down payment, and closing costs. Negotiate the best offer and lock in your rate.

Pay on time

Set up automatic payments to ensure your mortgage is paid on schedule. If you’re having trouble making payments, contact your lender immediately to discuss repayment options or loan modifications.

Make extra payments

If possible, pay a little extra each month to reduce your principal balance faster. Even small increases of $25 or $50 per month can shave years off your loan and save thousands in interest charges.

As your balance decreases, more of your repayments will go towards your principal instead of interest. Make sure any extra payments are clearly marked as principal-only.

Refinance when rates drop

Keep an eye on interest rates and refinance your mortgage if rates significantly drop. Refinancing to a lower rate can lower your payments or shorten your loan term.

Shop around at different banks and credit unions for the best refinance offers. Refinancing does come with closing costs, so make sure the savings outweigh the fees before you proceed.

Comparing loan options and choosing the right lender

Major Bbanks vs. non-bank lenders

The big four banks – Commonwealth Bank, Westpac, ANZ, and NAB – offer home loans with competitive rates. However, non-bank lenders like Aussie Home Loans or Athena may have even lower rates and fees. Our mortgage brokers will compare more than 40 banks and lenders to get you the most suitable and affordable option for your needs. Non-bank lenders can also be more flexible, and helpful for those with unique circumstances.

Compare fees and features

Consider things like application fees, ongoing fees like monthly service fees, and penalty fees for breaking a fixed-rate contract.

Look at additional features like offset accounts, redraw facilities, and the ability to make extra repayments. Finding a lender with low fees and useful features can save you money in the long run.

Wrapping up

Here are the basic steps to navigate the home loan process for the first time. Though the road to homeownership is long, the reward of a place to call your own makes all the effort worthwhile.

You’ve got this! With determination and patience, you’ll be settling into your new home sweet home in no time. The challenges of the mortgage process will soon be a distant memory, replaced by the excitement and pride of being a new homeowner.