First Mortgage: Definition, Requirements, and Example

What is a first mortgage?

A first mortgage is the primary lien placed on a property to secure the original loan used to buy (or refinance) that property. It has priority over any later liens or claims (such as a second mortgage) if the borrower defaults and the property is sold.

Key takeaways

• A first mortgage is the primary, or senior, lien on a property.
• A second mortgage (home equity loan or HELOC) is subordinate and repaid after the first mortgage in a default.
• Lenders typically require private mortgage insurance (PMI) if the first mortgage LTV exceeds 80%.
• Mortgage interest on a first mortgage may be tax-deductible for taxpayers who itemize.

How a first mortgage works

When a lender approves a home loan, the borrower signs a mortgage (or deed of trust) that creates a lien on the property. The borrower repays the loan in monthly installments that include principal and interest. If the borrower refinances, the new loan usually assumes the first-lien position. The mortgage secures the loan and gives the lender legal claim to the property if payments are not made.

Typical requirements

Requirements vary by loan type (conventional vs. FHA, USDA, VA), but commonly include:
* Minimum credit score (varies by program)
Down payment amount (e.g., FHA can require as little as 3.5% down with qualifying credit)
Proof of income and assets
Appraisal and acceptable property condition
Payment of closing costs

Poor credit does not always disqualify a borrower, but it can affect interest rates and loan terms.

Loan-to-value (LTV) and private mortgage insurance (PMI)

LTV = loan amount ÷ appraised value.
If LTV > 80% on a first mortgage, lenders often require PMI to protect against borrower default.
PMI can be canceled once the LTV reaches a specified threshold (often 78% for conventional loans), depending on loan terms and home value appreciation.
* Borrowers sometimes use a smaller first mortgage (≤80% LTV) combined with secondary financing to avoid PMI; secondary loans typically carry higher interest rates.

First mortgage vs. second mortgage

• First mortgage: senior lien, lower interest rate, repaid first in a foreclosure or sale.
• Second mortgage: junior lien (home equity loan or HELOC), subordinate to the first mortgage, usually higher interest rate and increases monthly obligations.
  Taking a second mortgage can be useful for major expenses or home improvements but increases financial risk if income is unstable.

Example

A homeowner has a $250,000 first mortgage. Years later they add a $30,000 second mortgage. After repaying $50,000 toward the first loan, they default and the property sells for $210,000. The first-mortgage lender is paid the remaining balance owed on the first loan (about $200,000), and the second lender receives the leftover ($10,000). Because the first mortgage is senior, it is paid before any junior liens.

Managing trouble with mortgage payments

Options if you struggle to pay:
* Loan modification
Short sale
Deed in lieu of foreclosure
Seek advice from your lender or a housing counselor to explore alternatives.

Bottom line

A first mortgage is the primary loan that enables home purchase and holds legal priority over subsequent liens. Understand lender requirements, compare rates, and consider LTV and PMI implications before borrowing.