What to consider when taking out a mortgage

Friday, 05 October 2012 12:06

What to consider when taking out a mortgage

What to consider when taking out a mortgage

Buying a home is one of the most stressful things you can do. However, being a homeowner is incredibly rewarding and a great investment for the future. So, if you're considering buying a property and want to know what you should think about when taking out a mortgage, read on.

What can you borrow?

You might have a good idea of what kind of house you want and which area you wish to live in. However, if you can't afford the mortgage, you should think twice about moving to your ideal location. Therefore, it is incredibly important you are aware what kind of home loan you can take out before you start searching for your property.

One of the best ways to do this is to see a financial adviser who will take important financial information from you and any people you are planning to buy with and use this to determine how much money mortgage providers will typically let you borrow. By telling them what you earn, how much your bills amount to each month, your total savings and whether you have any other loans or expenses, they will determine the best cheap mortgage offer for you.

Alternatively, you can take a look at price comparison sites, as these often have mortgage calculators, which enable you to input this information manually. They then use this to reveal some home loan options.

Once you take a look at how much money you can afford to spare for your mortgage payments each month, you will be able to work out how much money you can borrow from the bank. This will definitely help you focus your property search, as you might find out you can afford more or less than you initially thought.

Working out how much deposit you need

Speaking to a broker or going online will also give you an idea of how much deposit you'll need. This might be something that is out of your hands – you may only have saved enough to put a minimum down payment on a house, such as £10,000 for a £100,000 property at a loan-to-value (LTV) of 90 per cent.

However, if you have more than the minimum ten per cent (or, occasionally five per cent) deposit, you have a greater number of choices. For instance, you could look at more expensive houses and flats, so long as you can afford the higher monthly mortgage payments. Therefore, if you have a deposit of £15,000, you could start searching for properties worth £150,000 at a LTV of 90 per cent. Alternatively, you could increase the amount you put down for properties that were in your original search. Therefore, you could deposit all £15,000 for a property worth £100,000 at a LTV of 85 per cent.

You may also decide not to spend all your savings on your deposit so you can keep some back in case you have to do some renovation work. Therefore, this could change the amount you put down and also the value of the property you choose. This is particularly the case if you find somewhere that will require a lot of work doing to it, in which case you will save some money to pay for this.

Passing your credit check

After you have chosen the mortgage you want to go for, your details will then be put forward to the provider for them to check. At this stage, they will run a credit check on the financial histories of all those who are buying the house, for instance, you and your partner.

They will look at how much you earn, how stable your job is, what your bills are, whether you have dependents and other regular expenses you have. Other things they will examine include whether you've ever defaulted on your rent, mortgage, credit card or bills in the past. If you have, you might find that this counts against you and gives you a lower credit score.

If you have any history of debts, bankruptcy or long periods out of work, or have had a number of credit checks in the past, you might also find it difficult to pass this assessment.

It is integral you pass your credit check, otherwise the mortgage provider will not go ahead with your application for a home loan. If you do fail, you will have to look for another mortgage deal and apply again, hoping you will pass the test this time.

After this, you will get your mortgage offer and then you will be able to encourage your solicitors to get the ball rolling on the exchange of contracts for your new property.

 

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