If you are planning to get on the property ladder, you must be a bit confused about the process. Purchasing a residence is not as uncomplicated as buying veggies.
Although you have sufficient cash to pay as a down payment, you must carefully weigh up if you can afford to pay down the debt. A mortgage is a long-term loan. It will tie you up for a long period of time, say 10, 20 or more years.
Your financial situation cannot be the same throughout the term as emergencies can crop up at any time, like you may lose your job or you may come across a medical emergency. Even in such scenarios, you should be capable of negotiating your mortgage payments.
You will likely be elated to see your dream of getting onto the property ladder coming true, but it requires a lot of effort. Here are the preliminary steps to be taken before you take out a mortgage.
Grow your savings
You should grow as many savings as possible. It is generally assumed that a first-time home buyer needs as little as 5% of the market value of your property. However, the fact is that most lenders would want you to have at least 10% of the value of the belongings as a deposition. This will help you qualify for a mortgage soon.
Financial experts usually recommend saving a lot of money as a deposit, probably up to 20%, as it reduces the loan to value. Hence, you end up qualifying for a mortgage at a lower interest rate.
To grow your savings, you need to know what value of the property you can actually afford to buy and then estimate what would be 20%, not to mention you will have to stash away a little more money to offset the impact of inflation.
Look over the incomings and outgoings so you understand how much finances you can keep every month. Apart from setting aside for emergencies, you should now keep aside the deposit. Whether or not you manage to have saved money after meeting all of your expenses, you will have to whittle down your expenses, so you can quickly grow your deposit for a mortgage.
Know your credit score
A mortgage is not like an emergency loan that you are eligible for despite a bad credit rating. These are long-term loans. Undoubtedly, a lender would want you to have a good credit rating. Multiple factors include your income, which a lender would want to look at to determine if you are eligible for a mortgage.
Although it is secured against property, a lender would want their money back. They would certainly not get into the hassle of the auction, and therefore having a good credit score is what becomes essential to get the nod.
You can get a free copy of your credit report once a year and try to get it from all three credit reference agencies, as you never know to whom your lender would consult.
Make sure that your report does not consist of errors. Try to make payments on your debts on time. Do not delay the payments of rent, utility bills, phone bills etc., as they can affect your credit rating.
If your credit rating is already blemished, try to take out bad credit loans in the UK. These loans are ideal when you need money despite a poor credit file.
Because these loans are paid back in fixed monthly instalments, you can improve your credit score provided the loan is repaid on time. Make sure your credit score is good at the time of putting in a mortgage application.
Get pre-approved
If you have already saved a considerable amount of money, you should try to get pre-approval from a lender. In fact, it is a must when you penetrate the demand to purchase a house. Containing a pre-approval missive from a lender indicates that you are serious about buying property, and realtors would consider you seriously.
You can obtain pre-approval from considerable lenders without fearing the loss of your credit score. It indicates how much money they would be able to give you, interest rates, terms, and so on.
However, note that they will make this decision without running a hard credit check, so you cannot be sure about these details. When you apply for a mortgage, they will peruse your credit report, repaying capacity and future ability to make payments in case of an emergency and then decide if money should be lent to you.
Even if you have got the pre-approval letter from a mortgage lender, there is no guarantee that you will be signed off on.
Look after your family finances
This is what you need to care about when you apply for a mortgage with another applicant, too, like your spouse. Because you two are involved in the application process, a mortgage lender will look at the credit file and the repaying capacity of both of you.
It is good if both of you have an excellent credit rating. However, if you have a less-than-perfect credit rating, the chances of qualifying for a mortgage are still good, provided your co-applicant has a stellar credit rating.
However, joint mortgages are not just common in people with bad credit ratings. These loans are popular because of a higher approval rate. Because you both are responsible for making payments, a lender would find it less risky.
Try to get a pre-approval letter from a lender, so you know how much money you will be able to borrow to get onto the property ladder.
Wrapping up
If you take out a mortgage first, you will certainly be worried. Many preparations are to be done apart from having a deposit size.
First off, you need to check if your credit rating is good. If not, try to have it improved by the time you apply for a mortgage application. Consider applying for it with a co-applicant.
Get a pre-approval letter beforehand, so you know how much it will cost you in total.
