First Time Home Buyer's Guide: Mortgage Loans, Grants & More

Buying your first home is an exciting time. You get to say goodbye to renting and start building equity in a place of your own. It’s a big financial decision, and the home-buying process can feel confusing and overwhelming if you’ve never done it before.

Understanding the steps can help you make informed decisions and avoid costly mistakes. You may also qualify for special mortgage programs, down payment assistance, and grants that make owning a home more affordable. This first-time home buyer mortgage guide breaks everything down to help you take the next step toward owning your first home.

HOW DOES A MORTGAGE WORK?

A mortgage is a loan that helps you buy a home without paying the full price up front. It’s offered by banks, credit unions, and other lenders, and you repay it in monthly installments, usually over 15 to 30 years. A mortgage is a secured loan, and the home you purchase serves as the collateral.

Most mortgages require a down payment. The amount depends on the lender and loan type, and typically ranges from 3% to 20% of the home’s purchase price. Some mortgages, like FHA loans, make it easy for first-time buyers by allowing you to put down as little as 3.5%.

WHAT ARE CLOSING COSTS?

When you buy a home, you'll need to budget for the closing costs in addition to your down payment. These fees cover the services needed to finalize your loan and transfer ownership of the property. Closing costs are typically 2% to 5% of the loan amount.

Here's what they usually include:

• Loan origination
• Home appraisal
• Home inspection
• Attorney
• Escrow
• Title insurance
• Recording 
• Title transfer
• Other fees and taxes

Some lenders may also require you to carry private mortgage insurance (PMI) if your down payment is less than 20%. PMI protects the lender in case you default on the loan. Once you’ve built at least 20% equity in your home, you can ask your lender to cancel the coverage.

HOW DOES MORTGAGE INTEREST WORK?

When you make your monthly payment, you aren’t just repaying the loan. You're also paying interest, which is a fee you pay your mortgage lender for the money you borrow. 

The mortgage interest rate is expressed as a percentage of your loan amount. For example, if you have a $300,000 mortgage with a 4% interest rate, you’ll pay about $12,000 in interest per year, or roughly $1,000 per month ($300,000 × 0.04).

The mortgage interest rate can be either fixed or variable. With a fixed rate, your monthly payment stays the same for the entire term. Many home buyers prefer fixed-rate mortgages for their stability and predictability.

If a mortgage has a variable rate, it can change over time based on market conditions. This type of loan may be a good option if you expect interest rates to decrease in the future.

When comparing loans, you’ll see the annual percentage rate (APR) listed. The APR includes the interest rate, but it also factors in lender fees to give you a better picture of the loan’s true cost.

HOW TO KNOW YOU’RE READY FOR HOMEOWNERSHIP

Before you start browsing listings or attending open houses, it's important to determine whether buying a home makes sense for you right now.

Here are four signs you're ready:

YOU’RE FINANCIALLY STABLE

Most lenders prefer to see at least two years of steady employment, although this can vary. You should also have a solid emergency fund that can cover at least three to six months of expenses, like replacing an HVAC unit or fixing a leaky roof.

YOU HAVE GOOD CREDIT

While you don't need perfect credit to buy a home, a higher score will help you qualify for a better interest rate. Before applying for a mortgage, check your credit report for errors and work on paying down existing debts to improve your score.

YOU’RE PLANNING TO STAY PUT

Homeownership is best when you're planning on staying in one place for at least five years. This allows you to build equity and offset the closing costs and any repairs or updates that are needed. If you think you'll need to relocate soon, renting might be a better choice for now.

YOU UNDERSTAND THE FULL COST OF OWNERSHIP

Owning a home comes with ongoing costs you’ll need to plan for each year.

You'll need to budget for:

• Property taxes
• Homeowners insurance
• Maintenance and repairs
• HOA fees (if applicable)
• Utilities

These expenses usually average 1-2% of your home's value annually.

DETERMINING YOUR HOME BUYING BUDGET

Understanding how much home you can afford helps you focus on properties within your price range. Instead of just focusing on the purchase price or monthly mortgage payment, be sure to factor in the other expenses that come with homeownership.

Here are some common costs to budget for:

• Down payment: 3% to 20% of the purchase price, depending on your loan type

• Closing costs: 2% to 5% of the loan amount

• Moving expenses: Includes movers, truck rental, and packing supplies

• Homeowners insurance: Protects your home and belongings and is often required by lenders

• HOA fees: If applicable, these cover the upkeep of shared areas, landscaping, and community facilities

• Utilities and services: Electricity, water, gas, internet, trash collection, etc.

WHY YOU SHOULD GET PREQUALIFIED

Getting prequalified for a mortgage before you start house hunting is a smart move. It helps you understand your price range, gives you more negotiating power, and makes the home-buying process smoother.

Prequalification is when a lender does a preliminary review of your finances to estimate how much they may be willing to lend. Prequalification is not the same as formal loan approval, which requires a more detailed review of your financial information and a hard credit check.

If you are approved, you'll receive a prequalification letter that you can show to your agent and sellers. This letter can strengthen your bargaining position, especially in a competitive market, by showing you're a serious buyer with financing already lined up.

Prequalification can also help you identify issues early so you can take steps to correct them. For example, it may reveal that you need to pay down debt to qualify for a better interest rate or a higher loan amount.

GREAT MORTGAGES FOR FIRST-TIME HOME BUYERS

Several mortgage options are available that make buying a house more affordable and accessible. These loans are offered through banks and credit unions but are backed by U.S. government agencies. Each has its own benefits, so it's important to understand your options before you apply.

Here are three common mortgages for first-time home buyers:

FHA LOANS

Backed by the Federal Housing Administration (FHA), these loans are a popular choice for those with lower credit scores or smaller down payments. Borrowers with a credit score of at least 580 can qualify with as little as 3.5% down, while those with scores between 500 and 579 may still qualify by putting 10% down.

To qualify, you’ll need to meet FHA guidelines for income, employment, and debt. FHA loans also require that you pay both an upfront mortgage insurance premium (1.75% of the loan amount) and annual mortgage insurance, which can increase your monthly payment.

USDA LOANS

United States Department of Agriculture (USDA) loans are designed to help low- to moderate-income buyers purchase homes in rural areas. Up to 100% financing is possible, which means you may not need a down payment. 

To qualify, the property must be in a USDA-approved area, and your income must fall below certain limits based on your location and household size. USDA loans require a one-time upfront guarantee fee of 1% of the loan amount, which is paid at the closing. An annual guarantee of 0.35% of the loan balance is also required. 

VA LOANS

VA loans are backed by the U.S. Department of Veterans Affairs (VA) and are for active-duty military personnel, veterans, and eligible family members. No down payment is required, interest rates are often lower than other loans, and you also don't need to carry PMI. To qualify, you'll need to obtain a Certificate of Eligibility (COE), which verifies your service history.

The following table shows how FHA, USDA, and VA loans compare to conventional loans:

GRANTS THAT MAKE BUYING YOUR FIRST HOME EASIER

Many first-time home buyers struggle to save for a down payment. A grant can cover part or all of this expense. Unlike loans, first-time homebuyer program grants don't need to be repaid, which helps you get the keys to your first home sooner.

Here are some grant programs that can help you get started:

WASATCH PEAKS HOME$TART GRANT

Wasatch Peaks’ Home$tart grant provides up to $15,000 to eligible first-time homebuyers to help cover the down payment. To qualify, you must not have owned a home within the past three years or be classified as a displaced homemaker. Your household income must also fall at or below the HUD median income for the county where you plan to live. The grant does not need to be repaid as long as you remain in the home for at least five years.

NATIONAL HOMEBUYERS FUND

The National Homebuyers Fund offers up to 5% of your loan amount to help cover your down payment or closing costs. You don’t have to be a first-time homebuyer to qualify, but you must meet income and credit requirements and work with a participating lender.

STATE GRANTS

Most states offer down payment assistance programs for first-time homebuyers. For example, Utah provides several options through the Utah Housing Corporation, which offers loans and grants to help eligible buyers with down payments and closing costs. The best way to find opportunities is to visit your state’s housing finance agency website to see what programs you qualify for.

HOW TO APPLY FOR A FIRST-TIME HOME LOAN

If you’re ready to buy your first home, learning how to get a first-time home loan is the next important step. Getting approved doesn’t have to be overwhelming when you know what to expect.

Here’s what the process looks like:

1. CHECK YOUR CREDIT SCORE

A strong credit score may help you qualify for a better interest rate. If your credit score needs to be improved, pay down debts, make all payments on time, and dispute any errors on your credit report. Keep in mind that it may take several months for your score to improve.

2. GATHER REQUIRED DOCUMENTS

Your lender will verify your financial information to ensure you can repay the money you borrow. Gather the documents you’ll need before you apply to prevent delays. If additional documents are requested, be sure to respond right away to ensure the process stays on track.

3. SHOP FOR A LENDER

Compare home financing offers to see which lender offers the best deal. Even just a small difference in the interest rate could save you thousands of dollars over the life of the loan. Credit unions, like Wasatch Peaks, typically offer lower rates and fees than other lenders. They also offer more personalized service.

4. GET PREAPPROVED

Get preapproved before you start looking at homes, so you will know what you can afford. Your lender will review your financial information to determine how much you can borrow. You’ll then receive a preapproval letter that you can show your agent and sellers to let them know you already have financing lined up.

5. COMPLETE THE LOAN APPLICATION

Provide your lender with detailed financial information and authorize a credit check. Your lender will then give you a loan estimate that outlines your interest rate, monthly payment, and closing costs. With Wasatch Peaks, you can conveniently apply for a home loan online, by phone, or in person.

6. NAVIGATE THE UNDERWRITING PROCESS

Your financial information will be verified, and the home you are buying will be appraised. This typically takes 30 to 45 days. Stay in close contact with your lender and respond quickly to requests to ensure a smooth process.

7. CLOSE ON THE LOAN

On the closing day, you'll sign the final paperwork, pay your down payment and closing costs, and receive the keys to your new home. Be sure to review everything and that you understand the terms of your mortgage before signing. Once everything is complete, the home is officially yours.

BEFORE YOU APPLY

Taking a few steps before you apply for a mortgage can make the process smoother and increase your chances of approval. Being prepared can help you save time and ensure the process is completed without any setbacks.

Here are a few important things to do before applying:

KNOW YOUR CREDIT SCORE

Make sure your credit history is in good shape to get the best deal on your loan. If you need to improve your credit, start working on it as soon as possible by paying your bills on time and using your credit cards wisely. Also, avoid taking on new debt, which could make it harder to qualify.

UNDERSTAND THE COST OF OWNERSHIP

Before you buy, be confident that you can comfortably afford all of the expenses that come with homeownership. Many buyers focus on whether they can handle the mortgage payment. That's important, but it's only part of the financial picture. As a homeowner, you'll also be responsible for maintenance, property taxes, homeowners' insurance, utilities, repairs, and other expenses. 

WORK WITH A TRUSTED LENDER

Mortgages can feel complicated or intimidating for new homeowners, but choosing the right lender can make all the difference. Credit unions, like Wasatch Peaks, offer personalized guidance. They will walk you step-by-step through the application process, answer all of your questions, and ensure you understand the details.

GET PREQUALIFIED

Stop by any Wasatch Peaks branch — no appointment needed — to discuss your homebuying plans. Bring your pay stubs, W-2s, or other income documents. We’ll ask questions like, “How long have you been employed?”, “How much do you have saved for a down payment?”, and “What current debts do you have?” Once we have a clear picture of your financial situation, we can help you understand what you qualify for.

ELIMINATE OR REDUCE EXISTING DEBT

Your lender will look at your current debts to make sure you aren’t overextended. The less you owe, the stronger your application will be. Paying off credit card balances is one of the easiest ways to improve your chances of loan approval.

AVOID MULTIPLE MORTGAGE APPLICATIONS

Applying for several mortgages at once might seem like a good idea, but a hard credit check will be done for each application. Too many hard checks in a short period can lower your credit score.

GATHER YOUR DOCUMENTS

Before you apply for a mortgage, check with your lender to see which documents they'll need. Having everything ready ahead of time helps you avoid delays.

FIND A GREAT REAL ESTATE AGENT

Find a real estate agent who has your best interests in mind. Choose someone who understands what you're looking for and knows the area you want to move to. You'll work closely with your agent while you are looking for a home, so it's important to find someone you really connect with.

FIND OUT IF YOU QUALIFY FOR HOME BUYER ASSISTANCE

You never know what assistance is available unless you ask. You may qualify for federal, state, or local programs that help make buying a home more affordable. Be sure to mention if you're a veteran or if you're currently serving in the military. 

BELIEVE IN YOURSELF

You're about to begin an exciting new chapter in your life: buying your first home. The journey doesn't have to be stressful or overwhelming. As Patricia Taffs, one of our experienced mortgage professionals, puts it: "You'd be surprised what you can qualify for! Don't count yourself out — just ask!” 

GET A GREAT DEAL ON YOUR FIRST HOME LOAN

Buying your first home doesn't have to be complicated or confusing. It helps to be prepared and to take things one step at a time. The process is also smoother when you work with a trusted lender who's committed to making your dream of homeownership come true.

Ready to take the next step? Wasatch Peaks Credit Union is here to help. Our experienced mortgage professionals offer personalized guidance to make buying your first home easier. Check out our first-time homebuyer loans today to see how close you are to holding the keys to your new home.

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