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.



Finance articles

  • How to save money on your household expenses

    Running a household is extremely expensive and you may find all the money you earn goes straight back out on bills after payday. However, if you want to leave a little extra for you to enjoy yourself, read on to find out some tips on saving money on your household expenses.

  • 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 to look for when choosing a loan

    From paying down debt to funding a large purchase, borrowing is something many of us will need to do from time to time in order to get some extra money when our own finances won't stretch that far. In times like this, a loan could be the best way of securing the cash you need.

  • How to choose the best savings account

    With so much choice out there, you might be put off opening a savings account, in spite of your best interests, because it is simply so confusing. However, it really is worthwhile putting your cash in such a vehicle, whatever you are saving for.

  • How to get started in stocks and shares trading

    The world of stocks and shares can appear to be very complicated to people who are unfamiliar with it. However, once you learn the ins and outs of the markets, you'll be in a position to confidently take part in trading and could boost your finances as a result.

View More Articles

Related stories

4.4m UK adults financially supported by their parents

Adult children still rely financially on parents

Around 4.4 million adults in Britain are turning to the Bank of Mum and Dad for financial support, research by LV= shows.

Austerity and low interest rates mean Brits saving less

Brits saving less as wallets remain squeezed

Belt-tightening Brits are saving 13 per cent less than a year ago, with one in four people saving nothing at all, latest research shows.

Bad credit? Here's how you can tackle it!

 Bad credit can affect all kinds of people, for different reasons.

Bad credit can affect all kinds of people, for different reasons.

Brits need an extra £7,000 a year to live well, study shows

Extra cash would be welcomed by many Brits

People in the UK feel they need an extra £7,236 a year to live happily and comfortably, latest research by Aviva suggests.

Barclays cuts lending rates and launches zero fee mortgage

Barclays trims range of fixed mortgage rates

Barclays has today cut the interest rates on a selection of fixed rate mortgages and introduced a new home loan deal with no application fee.

Halifax launches Home Finder app

Free Home Finder app launches today

The Halifax has released a one-stop house hunter app, combining a property search engine, mortgage calculators, local area information and homebuyer guides.

Santander launches Newbuy mortgages

NewBuy mortgages at Santander

Santander has unveiled a range of NewBuy mortgages designed to help borrowers trying to get their first step on the property ladder.

Nationwide boosts mortgage lending by 44%

Nationwide lifts home loans by 44%

Nationwide increased its mortgage lending by 44 per cent last year, raising the number of mortgages for first time buyers.

Newsletter sign up


In addition to the weekly newsletter, which areas of finance would you like to hear from us about:

Tick this box if you would like us to send you promotions from carefully selected third parties.

By signing-up you agree to the terms of use and privacy policy.

sign-up button

Get the latest information on: