16th February 2017 at 4:20pm
To me the world of mortgages and property ownership is a bit of a mystery. Discount mortgages, tracker mortgages, fixed rate, variable rate and capped rate.
So many terms and types, but all I want is somewhere I can call my own, not to be left flabbergasted and frustrated. You would think it could be so simple, but no, unfortunately not.
If I am completely honest, this was all getting a little overwhelming and I needed direction. I had no idea what was involved in applying for a mortgage, but when you really want to stop throwing your money on rent this is a major issue.
So, I have done a fair bit of research and come up with some top tips to make sure you are up to speed with the basics, and have a practical knowledge of what needs considered before applying for a mortgage.
First things first, figure out how much can you afford
Mortgages have changed over the past few years and what you can borrow now hinges not just on your earnings – but what you spend too. It’s called ‘affordability rules’.
So, ask yourself what are your earnings – and what are your outgoings? For me this one was a pretty easy question to answer, I’ve been tracking my spending for a while now and know the exact cost of all of my essential outgoings.
This is anything that comes out of my account each month for things like utility bills, food, rent, car insurance and even my gym membership.
If you have no clue what your outgoings are, take the time to sit down and work them out. This way you can see how much you can afford to pay towards a mortgage each month.
There are loads of handy affordability calculators out there to assist you, try This is Money calculator to help you see how much you may be eligible for.
Work out how big a deposit you’ll need
Basically, the bigger the deposit you can put down the better – but it could be you need £10,000 at the very least, sometimes much more, depending on what part of the country you are looking to buy in. Saving as much as you can for as long as you can is the trick. But as This is money explains, lower deposits can be accepted;
‘The renewed confidence in the property market and support for mortgage lenders from the government has dramatically improved rates for those with smaller deposits. Rates remain higher but it is now far easier to get a home loan with a 15 per cent, 10 per cent or even 5 per cent deposit.’
Take a look at our blog ‘How to nurture your new saving habits and cut the cravings’ for tips and tricks to up your savings to help you boost your deposit budget.
Your credit rating matters
Your credit rating is one of the main areas lenders will look at when they consider your mortgage application.
Checking your credit rating is one of the best things you can do as you will be able to see what the lenders see. If your credit rating isn’t what you hoped it would be, try and improve it before you apply.
Take a look at the Money Advice Service’s page ‘How to improve your credit score’ for help.
Be prepared to be quizzed
So you know your monthly outgoings now, you’ve written it all down and have it to hand.
But that isn’t enough in the world of mortgage lenders. You need to be able to prove your outgoings, so be prepared to provide hard copies and proof of your expenditure over at least a 3 month period, sometimes more. Be prepared to answer lots of questions.
Do your research, know the extra costs
When it comes to buying a property, it isn’t just the cost of the home you need to fork out for, if only it were that simple.
There are a whole host of other costs which you will need to be prepared to pay.
Think legal fees, home reports, mortgage arrangement fees, valuation fees.
The list goes on and on, so you really need to make sure you can cover them. Take a look at ‘This is money’s’ handy checklist to make sure you know what to expect.
Getting advice is a very sensible way to go. Many people take advice when seeking a mortgage either independently or through a mortgage specialist. It is a great way to get a whole of market view and see all of the options available to you.
Though you can go direct to a lender of your choice, it is a good idea to get a view of all the options available to you. Make sure you get the best deal and shop around.
There are lots of areas to think about when looking to get on to the property ladder, but I hope that this list has given you some things to focus on.
I know they certainly have made life that little bit easier for me, and have really simplified the scary world of purchasing your first property.