Purchasing a first home is a major milestone in life — but the process of obtaining a mortgage can feel a little bit overwhelming. The various paperwork, requirements, and fees alone can be complex and confusing, particularly the first time you deal with them.

The first step is to determine you are ready, both financially and mentally, to take on the responsibility of homeownership. Once you’re confident in that regard, the next steps are to examine and evaluate each of the loan options available so you’re sure to get the best rates and terms possible. With a little bit of patience, you’ll be well on your way to a happy home buying experience. To begin, let’s take a look at how to determine if you’re ready for homeownership.

Despite the fun of house hunting, it’s important to consider whether you are actually ready to own a home. Needless to say, owning a home is a long-term investment. Though you’re probably aware that over time, homeownership makes more sense than renting, but that doesn’t always mean it’s appropriate to your unique situation.

Besides being financially prepared, housing experts suggest you should plan to stay in your home for at least five years—that way you have a chance to start paying down your principal balance and reap the financial benefits of homeownership (such as earning home equity).

When deciding if you’re ready for homeownership, there are a few questions you should ask yourself:

1. Am I ready to commit to living in a single location for at least five years?
2. Am I up to the tasks of regular house and property maintenance?
3. Do I plan to maintain or grow my income level for the foreseeable future?

If you answered “yes” to each of the questions above, then you can move on to this final question to be sure you’re ready for owning a home:

Am I financially ready for the responsibility of a mortgage, including monthly payments, insurance and taxes?
This is a complicated question and one you should carefully consider before deciding to apply for a loan. Some of the major financial factors involved in obtaining a mortgage for the first time include:

• Credit Score
• Available funds for a down payment and the closing costs for your loan
• BuyerAdvantage Pre-Approval eligibility
• Proof of income
• Affordability of mortgage payment
• Types of mortgages you may qualify for

Let’s take a look at each item in turn.

One of the biggest mistakes first-time borrowers make is failing to understand their credit standing. Before applying for a mortgage, it’s vital to thoroughly review your credit report from one of the three major credit bureaus, and resolve any errors that may appear. You’re entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies. Order online from annualcreditreport.com, the only authorized website for free credit reports, according to the FTC.

A stronger credit history will generally get you more favorable terms, and a lower interest rate on your mortgage. The general best practice is for future homebuyers to make timely payments on bills, credit cards and loans for at least one year and up to three years before diving into a mortgage.

Depending on the lender, the minimum credit score requirements for loan qualification are often between 620 and 640.

One of the biggest roadblocks people see to homeownership is the requirement for a down payment — but that shouldn’t prevent you from seeking a mortgage. While 20% is frequently quoted as a standard down-payment, there are several programs available that allow lower down payments — as little as 3.5% for FHA loans, 3% for some conventional programs, or even 0% for qualifying service-members through the VA’s home loan program. Speak with a PennyMac loan expert to see if you qualify for these loan programs.

In addition to your down payment, you will be responsible for the costs and fees due at closing. While this number depends on your home loan’s rate and terms, experts estimate that closing costs typically range from 2-5% of the total mortgage. So, if you take out a mortgage for $150,000 you’ll have to pay roughly $3,700 in closing fees, although they could be more if you pay points to buy down your rate. In some cases, you can roll your closing costs into the final loan amount to reduce the cash needed at closing.

Your total loan amount is largely dependent on your current financial status, including your gross income, existing debt, and the type of loan program you select. As a general rule, most loan programs require that your total mortgage payment (including your property taxes and insurance, and, if applicable, mortgage insurance and/or monthly association dues) and existing monthly debt obligations comprise no more than 45%-55% of your gross monthly income. A PennyMac mortgage expert will work closely with you to determine a housing price that you can afford.

Tip: 5280 Mortgage™ offers calculators to help you determine how much home you can afford and get estimates of your monthly payment in different scenarios.

Once you feel secure about your financial readiness, the next step is to get pre-approved with PennyMac’s BuyerAdvantage Pre-Approval or pre-qualified for a mortgage loan. You can begin the pre-approval process online or speak with a lender to get a customized quote. This will show you how much you might be able to afford and give you an estimate of your monthly payments.

Getting pre-approved is a fairly simple process that requires credit verification and income verification but does not require a full underwriting process. Once you are pre-approved, you will receive a BuyerAdvantage Pre-Approval letter to present to home sellers as a measure of good faith.

Your lender will want to ensure that you can afford the loan you’re applying for. That being said, lenders say first-time homebuyers often delay approval by failing to gather the required financial documents ahead of applying for the mortgage. To prepare for the application process, be sure to obtain the following documents:

• A full month of paystubs
• Tax returns, W-2s, and/or 1099s
• A list of current debts, such as car loans, etc.
• Your current bank statements

So, you’ve done your research and you’re confident in taking the next step to buying a home: applying for the loan. Now you must choose a lender.

When you’re a first-time homebuyer, you want a lender you can trust to help you through the process. As a top national mortgage lender, 5280 Mortgage’s licensed Loan Officers are specifically trained to help entry-level home buyers move through the mortgage process and have a pleasant home buying experience. In fact, we are dedicated to fulfilling the dream of homeownership for everyone interested in taking the next step on a new property. We’re working every day to improve the experience of finding the right home loan for your unique needs and offering competitive rates on a wide range of products. Interested to learn more about what 5280 Mortgage™ can do for you? Get your own customized quote today.