The first thing to do is to work out exactly how much you can afford each month for monthly repayments. While mortgage providers tend to lend around 3-4 times your annual gross salary as to how much you can borrow, the real factor is affordability. On paper you may look like you can afford a ?150,000 house for example, but this does not take into account the fact that you may have lots of other commitments which could leave you financially overstretched.
Work out your monthly budget, allowing for house-related costs such as insurance and general upkeep, plus food, entertainment, car costs, savings, utilities, other debts etc. The chunk of change you have left over should be the very maximum amount you can afford to pay out each month for a mortgage.
Once you know how much you can realistically afford, then shop around. There are literally hundreds of mortgage products and lots of great deals available, so you don't have to pick the first one that comes along.
Using the internet is the best way to find lots of mortgage information quickly and easily, allowing you to compare terms and conditions and therefore finding the best deal.
If you are looking at a fixed or discounted rate, check out whether you will be tied in to the mortgage lender after the special period ends. Many will charge you a financial penalty if you try to change to another provider within a specified period once the ?honeymoon? period is over.
Check out what fees are charged. Some mortgage companies will offer you incentives to take out a mortgage with them, such as free conveyancing - which could save you pounds - or no administration fees.
Finally, check out the small print - many mortgages can look good on the surface but additional costs can be hidden away in the terms and conditions.
Questions to ask a lender before taking a mortgage
So, you have found a mortgage you like the look of. The next thing you need to do before making an application is to make sure that you really are getting the right deal for you and your circumstances.
These are the sort of questions you need to ask a mortgage lender before you apply:
1.How much are your administration fees? Admin fees are costs associated with your mortgage application that you will need to pay, for example, an application fee. These fees vary from provider to provider, and some will waive them as part of a deal, so don't pay out more than you need to 2.How much is the valuation cost? This is the cost of having your potential new home valued. The mortgage company instructs a surveyor to go out and value the house to ensure that it is worth the mortgage amount 3.What will my monthly repayment be? Ensure that you really will be able to make the mortgage repayments comfortably 4.Is there any flexibility in the mortgage payments? Some mortgage companies offer repayment holidays, or allow you to make an early repayment without charging you any financial penalties. Am I able to make an increasing repayment so that I can reduce the amount of interest charged? Or a lump sum repayment, without incurring any financial penalties?
A mortgage is big financial commitment, so it is important that you take out the time to ensure that you get the right deal for you.
With buying a house the biggest single financial outlay you're likely to make in your life, making sure you get the right mortgage for you is extremely important. However, with a little bit of forward planning and some research, as well as making use of the experts in the home-buying market, buying your own home can be an easier proposition than you might have thought.
Where to Start
The first thing you need to decide is how you want to arrange your mortgage. There are various ways, and each has their own individual pluses and minuses over the other. For instance, you could go through your bank, but they can often be less competitive and restricted for choice. Or you could go through a dedicated mortgage lender, who has more of a choice available, yet may charge more interest.
The best way to decide is to speak to more than one company ? enlist the help of an independent specialist, if you prefer, who can give you an unbiased opinion of what's right for you. It may cost a little extra, but it'll save your pocket in the long run.
How Much to Borrow
One of the biggest stumbling blocks for people looking to get on the property ladder is the amount of mortgage they can get. Dependent on your circumstances, on average you can borrow up to 3.25 times your income, as well as adding on your partner's annual income. So, if you both make ?50,000 per year, you could get a mortgage for ?212,500.
Or, if it works out better, you can combine the incomes and you would be eligible for up to 2.75 times the joint amount. Using the same example, you could apply for up to ?275,000. Whatever amount you are approved for, you normally have to pay a 5% deposit, so you need to take that into consideration.
You can get what's known as a 100% mortgage, but they're usually a lot more expansive ? often as high as 1% - so they should only be used as a last resort. Also, be wary of lenders that are willing to loan you 5 times your salary, or ones that don't need to see proof of earnings ? their interest rates and payments can be crippling and could result in you losing your home.
Finding the Best Deal
Once you know how much you can borrow, the next step is finding the right deal for you. This is where you need to take your time and make sure you choose the right offer and not the ?best? one. It may be tempting to go with a company who offers you low interest rates of 5%, for example, but you'll usually find this is for a limited time only.
After that, your rates will hike up above the normal amount, or you might have to take out high-cost insurance cover with the same company. Make sure you look at all the small print ? the best type of mortgage is one that has a fairly steady interest rate and allows you to move to a more beneficial type at a later date.
What Type of Mortgage to Take Out
In the UK, there are two main types of mortgage ? a repayment one, and an interest-only. The first one is the most common, since it ensures that your monthly payments will mean your home is yours at the end of the mortgage period, usually 25 years.
Interest-only is exactly that ? you are only paying the interest each month, with a lump sum to pay off at the end of the mortgage period. While this is good for keeping your payments down, it's highly risky, since if you can't cover the lump sum at the end, you'll lose your home.
There are other things to take into consideration, such as should you use a mortgage broker or not, and how long you should spread the payments over. But the above points are the main ones to look at when you're considering getting your own mortgage.
Both James Miller & Michael Sterios are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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