Mortgages are tricky old things – there’s a lot more to them than meets the eye. It’s not just a case of finding a property that you want to buy and applying for a loan; there’s a lot more to it than that. A lot of first-time buyers don’t understand just how much there is to getting a mortgage, which is why it’s common for applications to fail.
The good news is that if you know what you’re doing when it comes to applying for a mortgage, your much more likely to be accepted. There’s a lot that comes with applying for a mortgage, which a lot of first-time applicants don’t understand. However, if you know what you’re doing, it’s easy to get accepted.
To help make mortgages easier to understand, we’ve put together this guide. Packed full of useful tips and advice, this should tell you everything that you need to know about mortgages.
What is a mortgage?
First things first, we’re just going to explain what exactly a mortgage is. You probably already know that a mortgage is a loan used to buy property, but there’s more to it than that. Most mortgages run for 25 years, but some can be shorter or longer. (That’s how long you have to pay the loan off in full – to do this a monthly payment plan is set up.)
The size of the loan that you take out will depend on the cost of the property and the size of your deposit. Although most mortgage providers require at least a 10 percent mortgage, some do accept a slightly lower amount. We’ll talk about deposits later on in more detail. The amount you borrow is done against your house. So if you fall behind on payments your mortgage provider can repossess your home, to cover the payment of your loan.
You need to save a deposit
Without a deposit, you can’t get a mortgage. Most mortgages companies ask for a 10 percent deposit, although some do also have lower deposit schemes on offer. You can also opt to put down a higher deposit, should you want to. The higher your deposit, the less you’ll need to pay back to your mortgage provider.
The deposit is taken from the overall cost of the property. So, for example, if a property cost 300,000, you would need to put down a deposit of 30,000. That’s if you opted for a ten percent deposit, a 25 percent deposit would require 75,000 to be put down. The cheaper the property is that you want to buy, the lower the deposit will need to be.
A good credit score is needed
To be able to get a low-interest mortgage, a good credit score is required. The lower your credit score, the higher the interest rate on your mortgage. You will also find that if you have a low credit score, the deposit percentage you will need will be higher. That’s why it’s so important that until you have a good credit score, you don’t apply for a mortgage. It’s also worth noting that if you apply for a mortgage and are turned down, your credit score will drop. This will remain low for six months and will then start to increase again. So unless you’re sure that your application will be accepted, it’s best to hold off on applying.
If you have a low credit score, the best thing to do is take the time to build it up before you apply. While it might be irritating having to wait around for your credit score to rise, in the long-run this is the best option. The good news is that increasing your credit score isn’t as difficult as you would think, it’s just a case of knowing how to go about it. An excellent option for increasing your credit score is signing up to credit repair services, as these can help you to improve it. You could also consider signing up to a credit card – as long as you pay your monthly bill on time this will slowly build up your credit score.
There’s not just one mortgage type
A lot of first-time buyers presume that there is just one type of mortgage, but that’s not the case. There are actually two types of mortgages; interest only mortgages and repayment mortgages. There’s a big difference between the two mortgages types. Interest only mortgages only require the interest to be paid off, not the actual loan. Then after the interest is cleared, the owners have to pay the sum they borrowed off as well. Whereas, repayment mortgages require the money borrowed plus the interest to be paid off at the same time. This means that after 25 years or so of paying off your mortgage, you’ll own your home outright.
As well as choosing whether you want your mortgage to be interest only or repayment, you also need to think about interest rates. Some mortgages come with a fixed interest rate that will stay the same for the period that you have to pay the loan off. While variable interest rates can go up and down over time. The option you choose is up to you; it’s just a case of thinking what will work out best in the long-run.
Comparing mortgage providers is crucial
If you want to get the best deal on your mortgage, it’s crucial that you compare providers. Don’t just go for the first mortgage option that you come across, take the time to research each and every option. By comparing your options, you can save yourself money and can make your application more likely to be accepted.
The best way to compare mortgage prices is by using an online comparison site. You can see all the different options, the deposits they they require and the interest requirements. This can give you an idea of which mortgage option and provider is best for you and your needs.
As you can see, there’s a lot more to applying for a mortgage than meets the eye.