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Are you Mortgage Ready?

Acquiring a mortgage can be difficult. Whether you are a first time buyer or someone looking to get back onto the property ladder. It is definitely a big financial commitment, and you might find yourself uncertain as to whether you can truly afford the full costs of owning your own home. When you start looking into securing your mortgage, you will find that the process can get quite complicated, particularly with the new rules and regulations. In this article, we will be exploring various aspects of the mortgage lending process to help you realize whether you are mortgage ready or not.

Let’s Start with the Basics. What is a Mortgage?

Put simply, a mortgage is simply a loan taken out to purchase a property or land. They are a common element in the process of owning your own home. Yes, that perfect house you have found will not be yours until you can make the bankers happy with your mortgage application or buy it up front.

Mortgages are different to regular loans as the mortgage is secured against the property. This means that the lender can take the property back if you can’t keep up the repayments(i.e. evict you). The average mortgage duration is 25 years, but the terms can vary.

You can acquire a mortgage from a bank, building society or specialist mortgage lender. However, it isn’t really that simple to get approved for a mortgage loan. Before the approval is granted, each potential lender has to go through a check, including a credit check, to make sure you can truly afford the costs of the mortgage repayments and the property upkeep. This is the part most people find tricky.

Is your Finance Healthy?

When deciding when to lend to you, the mortgage lender will consider all of your incomings and outgoings. You may have to provide bank statements and payslips to prove that your finances are feasible. These checks can sometimes feel quite invasive, as your outgoings include any debts, household bills, and even various costs of living.

Mortgage checks got revised after April 2014. They introduced what are called “stress tests” and other questions to make sure you would be able to keep up with your mortgage repayments and property costs if your interest rates went up or if your circumstances changed. They principally focus on the future, and look ahead to ask questions about any potential future changes that could affect your situation, such as planning on having a baby, retiring or any other changes of importance.

Bad or poor credit could mean you’re either turned down for a home loan or you’ll be offered a bad credit mortgage, which typically has a more expensive interest rate. Therefore, you may want to consider a period of a year or two where you rebuild your credit score, before buying a property.

Are You Ready to Settle Down?

The reality is that unless the housing market is booming, it doesn’t really make sense to buy a home that you’ll be living in for less than 3 or 4 years. Buying and selling property comes with plenty of transaction costs. If you’re in a property for less than 2 years, you will have to pay capital gains tax on any profit.

Therefore, if the plan is not to remain in the property for a long period of time, make sure to include the cost of the purchase and sale into your prospective budget – which typically includes a big amount in fees.

When Should You Start the Process?

Whether you are thinking of purchasing a home 2 months from now or even 2+ years from now, the time to start the mortgage process is right now. The concept of waiting for a mortgage to get ready is great. However, you need to be cautious in how you prepare to get ready for a mortgage. The wrong decisions, can lead to bad behaviours that can alter your credit score, and ultimately, delay your mortgage application.

That is why, you should contact a mortgage lender now, even if you are not ready or looking to purchase a home for a while. Your loan officer can check things like your credit, income, assets, etc. They can advise you of things that you need to work on. This will guarantee that you are actually ready when you are ready to purchase. There are plenty of mortgage brokers offering mortgage advice for free.

Deciding which mortgage lender to go for can be intimidating. There are multiple options such as your local bank, national banks, mortgage lenders, mortgage brokers and more. Not only fees, but qualification requirements can also vary drastically between all choices. As mentioned, having a challenging credit or income situation, puts you at higher risk of being declined rather than approved.

Other Options

Depending on the housing market in your area, renting nowadays can be just as costly as mortgage repayments, which makes it tricky to save for a future property at the same time. Throwing money away on rent will only make it harder to save for your future, especially with rental costs constantly on the rise. Make sure you calculate whether it costs more to rent or own in your area.

There are schemes in place to help potential buyers with their savings towards a mortgage, like a Rent to Buy. This scheme allows tenants to secure their chances of getting approved immediately once their Rent to Buy term ends. The main advantage is that you can live in your future home while you save. That way, you are investing in your future with all of your finances going towards your future property. The typical time duration of a Rent to Buy is 3 to 5 years.

Before you can truly be ready for home ownership, you should determine the answers to these questions. And in doing so, don’t make the mistake of being too quick to underestimate the risks. A mortgage is typically a 30-year commitment. Many who jump in prematurely, end up in a repossession situation or in bankruptcy.

For a reliable source of information, please contact Independent Mortgage Brokers, a Trustpilot rated ‘excellent’ company. They also offer valuable online mortgage advice.

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Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of our Independent Mortgage Brokers to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisers working for or with Independent Mortgage Brokers are fully qualified to provide mortgage advice and authorised and regulated by the Financial Conduct Authority. All our independent Mortgage Brokers will offer advice specific to you and your needs and circumstances. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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