How to get ready to be approved for your first mortgage in the U.S.

Nearly 7 in 10 Americans own the house where they live, according to the census data. However, buying your first home requires good credit, saving money for a down payment and getting familiar with the process of applying —and being approved— for a mortgage.

“Work on your credit before applying for a mortgage,” suggests Yanely Espinal, a personal finance influencer. A higher credit score can yield lower interest rates, which is crucial in the current financial environment, determined by inflation and high interest rates.

“The pressure to buy a home comes from the idea of achieving the American Dream, but you have to create your own realistic timeline to achieve that dream in a way that works for you and your family,” Espinal says. “There is no shame in postponing your home purchase by a few more years in order to give yourself more time to save.”

How a mortgage works

Buying a house is a long and extensive process. Espinal suggests starting by enrolling in HomeView, a free course for first-time buyers offered by Fannie Mae, a public institution that provides mortgage financing and supports affordable housing. The course is also available in Spanish.

Barbara Mojica, executive director of the National Association of Credit Union Professionals, also recommends attending a seminar for first-time buyers offered by a local nonprofit organization in your area. “Those can be intimidating for newcomers to this country,” she says, “but these programs are completely free and will equip you with the right resources to further your path to homeownership.”

Broadly speaking, these are the most important steps to buy a house in the U.S.

Get pre-approved

A pre-approval is a preliminary estimate of the amount of money you can borrow from a lender, and the interest rate you would tentatively have to pay. To get pre-approved, lenders will need to get a sense of your income, other debts or credit lines you may have, your credit score and history, and any other assets you may have.

“A pre-approval shows sellers that you are a serious buyer,” explains Ana Staples, a credit card expert. “It tells them that a lender already looked at you, that you’re legit and they’re going to give you this much money to buy a house. Without it a lot of sellers will not even take you seriously.”

But a pre-approval also helps you have realistic expectations about your budget. “What you will actually see on paper may be a very different number from what you expected,” Staples says. “So it will also give you an idea of what houses you can afford.”

Mojica suggests exploring options among local credit unions because they may offer better terms than a traditional bank.

“Latino immigrants tend to combine incomes as a family and help each other,” Mojica says. “I highly suggest seeking a credit union that is currently taking everyone’s income into consideration so that they can afford the opportunity to buy a house a little bit quicker.”

Pick the right real estate agent

“While you work on getting pre-approved, you also need to find a real estate agent,” Staples explains. She recommends shopping around and interviewing multiple prospects, making sure that they’re familiar with your area and they have experience, especially with first-time buyers.

“With the support of a good agent, you won’t even feel like you’re doing all the work because they will do a lot of legwork for you,” Staples says.

Select the house you want to buy and make an offer

Once you’ve found the house you want to buy, the next step is to put in an offer. “Your agent and your lender will work together on making it happen,” Staples explains. “There might be some negotiation between the seller and you, and there might be other interested buyers, so that’s also a little bit nerve-racking.”

Close on the house

If the buyer accepts your offer, you’ll now have to pay the closing costs, which may range between 2% and 7% of the total mortgage amount, according to Staples. “After that, there’s usually a period where everything is taken care of. When you sign all the papers basically the house is yours.”

TIPS TO GET YOUR FIRST MORTGAGE

When it comes to buying a house, it’s paramount to know how much money you can afford on a down payment and get help from assistance programs focused on first-time buyers like you.

Down payment

Contrary to what most people think, “your down payment doesn’t have to be 20%” to get approved for a mortgage, according to Staples. A 20% down payment keeps you from having to purchase mortgage insurance, but that policy “only protects the lender in case you stop paying your mortgage.”

Your down payment can be as low as 3% or 5% of the total amount you’re borrowing, depending on the type of mortgage and the assistance you can get. “There are many programs that can help you cover the down payment or reduce it as much as possible,” Staples says.

Assistance programs for first-time buyers

Espinal suggests exploring one of these options:

1. FHA Loans from the Federal Housing Administration (FHA). They allow for lower down payments and more lenient credit requirements than traditional mortgages.
2. State down payment assistance programs. Designed to help those who might not have large savings stacked up yet, they offer grants or low-interest loans to help with the down payment and to cover closing costs.
3. Community Development Financial Institutions (CDFI). They often provide tailored financial services to communities in need, including immigrants. These may include homebuyer education, financial counseling and affordable mortgage loans.

“The immigration journey has multiple components and one of the most important is to build credit,” Staples says. “It might take you a long time to get your citizenship, it might take you a long time to build your credit to where you want it to be. You’ve got this. Just have faith in yourself and consistency.”

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The production and publication of this story by La Raza have been made possible in part thanks to a grant from The Chicago Community Trust through its Cross Community Impact grant program.