Getting a mortgage is one of the biggest financial commitments you’ll make, and understanding how it works is essential before you start house hunting. The process involves more than just applying for a loan—you need to prepare your finances, choose the right loan type, and navigate decisions about rates, fees, and lenders.
Before applying for a mortgage, work on improving your credit score and saving for a down payment. Both directly affect your loan-approval chances and the terms you’ll qualify for. Here’s what you need to know about securing a home loan.
What a mortgage is and how it works
A mortgage is a loan used to buy a home, where the property itself serves as collateral. You borrow money from a lender, then repay it over a set period—typically 15 or 30 years—with interest.
Your monthly mortgage payment includes principal (the amount borrowed), interest (the cost of borrowing), property taxes, and homeowners insurance. Depending on your down payment, you may also pay private mortgage insurance (PMI) until you reach 20% equity.
Understanding how much house you can afford is critical before selecting a home loan option. Use a mortgage calculator or affordability calculator to estimate your monthly payment based on your loan amount, interest rate, and down payment.
Taking the steps to get a sense of what type of mortgage works for you before you go house hunting is critical. There is great power in knowing that your mortgage lender is ready to fund you.
“One of the most common mistakes first-time buyers make is jumping into home tours before getting financially aligned,” says Neil Brooks, a real estate agent and president of NewDay Home Network. “Skipping pre-approval is one of the fastest ways to derail a search because it leaves buyers without a true price range. It also weakens negotiating power with sellers if they don’t have a pre-qualification letter in place.”
Should you use a bank or mortgage broker?
You can get a mortgage through a bank, credit union, or mortgage broker. Banks offer their own loan products, while brokers work with multiple lenders to find you the best rate and terms.
Banks may offer convenience if you already have accounts there, and sometimes provide relationship discounts. Mortgage brokers, on the other hand, can compare multiple lenders at once, which may save you time and money—especially if your financial situation is complicated or you’re looking for specific loan options.
You may think this is a black-and-white situation—whichever institution offers you the best loan—but how you feel about your lender is truly important.
“Ultimately, you should decide who to work with based on who makes you feel cared for, heard, and feels like they want to be on your team. Rates matter, technology can be a game changer for the process, but you still interact with your loan officer and team regularly throughout the process,” says Jake Vehige, president of mortgage lending at Neighbors Bank. “Getting a home loan is a dream for many people and your loan team should feel like they are on your side, no matter what type of institution they are.”
There’s no universally right answer. Compare rates and fees, and assess your relationship with both, before deciding.
Fixed-rate vs. adjustable-rate mortgages
The two main types of mortgages are fixed-rate and adjustable-rate (ARM).
Fixed-rate mortgages keep the same interest rate for the entire loan term. This means your monthly payment stays consistent, making budgeting easier. Most buyers choose 30-year fixed mortgage rates for stability and predictability.
Adjustable-rate mortgages start with a lower interest rate for an initial period (usually 5, 7, or 10 years), then adjust periodically based on market conditions. ARMs can save you money initially, but your payment can increase significantly after the fixed period ends and offer less stability.
Fixed-rate mortgages are generally safer for first-time buyers who plan to stay in the home long-term. ARMs may make sense if you plan to sell or refinance before the rate adjusts, but timing the market is tricky.
How much mortgage payment can you afford?
Just because you qualify for a certain loan amount doesn’t mean you should borrow that much. Lenders look at your income, debts, and credit to determine your maximum loan, but you need to consider your full financial picture.
“Start with your life, not the loan amount,” says Vehige. “You have values and financial pillars that are important to only you. You know your short- and long-term goals, plans for your family, and just because a lender approves a certain payment, doesn’t mean that aligns with your vision of your financial future.”
Before making an offer on a home, calculate what you’re comfortable paying each month. Factor in not just your mortgage payment, but all the other costs associated with homeownership—before you get too deep into the transaction.
“Financing can also fall apart when buyers realize too late that upfront costs extend beyond the purchase price, like closing costs, moving expenses, and reserves,” says Brooks. “When savings are tight, buyers may have to pause their search or exit a deal midway through.”
When to lock your mortgage rate
Mortgage rates fluctuate daily based on market conditions. A rate lock guarantees your interest rate for a set period—usually 30 to 60 days—while you finalize your loan.
Locking your rate protects you if rates rise, but you won’t benefit if they drop. Most buyers lock their rate after making an offer and having it accepted, giving them enough time to close without risking rate increases.
Talk to your lender about timing. If rates are trending upward, locking early makes sense. If they’re falling, you might wait—but be prepared to act quickly.
Which mortgage fees can be negotiated?
Mortgages come with various fees, and some are negotiable. Common fees include:
- Origination fees: What the lender charges to process your loan (typically 0.5-1% of loan amount)
- Application fees: Upfront cost to apply
- Appraisal and inspection fees: Required third-party services
- Title insurance and closing costs: Vary by location and lender
You can often negotiate origination fees, especially if you have strong credit or are shopping multiple lenders. Some lenders will also cover or reduce certain fees to win your business. Always ask for a loan estimate from multiple lenders and compare line by line.
Getting a mortgage doesn’t have to be overwhelming. Prepare your finances early, understand your home loan options, compare lenders, and ask questions. The more informed you are, the better positioned you’ll be to secure a loan that fits your budget and goals.
“The best loan for a first-time home buyer is one that supports stability first,” says Vehige. “It all comes down to personalizing your decision for you.”
Frequently asked questions
What does it take to qualify for a home loan?
Lenders look at your credit score, income, debts, and down payment. Most require a score of 620+ for conventional loans, steady income, and a debt-to-income ratio under 43%.
Should a bank or mortgage broker be used?
Both have advantages. Banks offer convenience and potential relationship discounts. Brokers compare multiple lenders and may find better rates. Shop both to see what works best.
What mortgage term is best for first-time buyers?
Most first-time buyers choose a 30-year fixed mortgage for lower monthly payments and rate stability. A 15-year term saves on interest but requires higher payments.
When should a mortgage rate be locked?
Lock your rate after your offer is accepted, typically 30 to 60 days before closing. This protects you from rate increases while you finalize the loan.
Can mortgage fees be negotiated?
Yes. Origination fees, application fees, and some closing costs can often be negotiated, especially if you have strong credit or multiple lender offers.
