Buying your first home can be tremendously exciting. However, unfortunately it isn’t all about finding the perfect home for you and your family, buying it, and then moving in. You also have to find the right mortgage, and get accepted for it. This isn’t always easy. Since the financial crisis, it has been more difficult than ever to borrow money. Banks are reluctant to lend, and especially large amounts like mortgages. Here is a helpful guide to finding, and being accepted for, a mortgage.
Check Your Credit
The first step you need to take when thinking of buying a home, is to check your own credit (and your partner’s if you are buying together). Sites such as Experian offer an easy online check. Even if your credit is good, there might be small changes you can make to improve it further. These include making sure you are registered on the electoral roll at your current address.
Get Your Finances in Order
It used to be that your ability to repay a mortgage was assessed only on your income. Banks multiplied your total income by 3, and that was the amount you could afford to borrow. To protect themselves, banks have had to make some changes. You will now not only need to prove your income, but also your expenditure, right down to your weekly food shop. So, get ready to have all this information to hand, along with any relevant statements, receipts and documents. Start making some cutbacks if you feel you need to. Use an online calculator to help you work out what you can afford to lend based on your current finances.
With a higher deposit, you’re more likely to be accepted for a mortgage. So, work out what you can afford. In some cases, it’s better to put off buying, and save for longer, to get up over a 10% deposit.
Explore Your Options
If you are worried about getting approval because you are on a low income, or you have a low deposit, there are some options to help. These include:
- Exploring non high-street lenders
- Shared ownership
- Help to buy scheme
- Right to buy scheme
Types of Mortgage
There are many types of mortgage, as well as different repayment options. A few examples include:
- Tracker mortgages. The interest mirrors the Bank of England base rate.
- Standard variable rates. The interest rate is set by lenders, and can change significantly.
- Fixed rates. Your rate of interest will be set for an agreed period, and will not be affected by any base rate changes.
- A repayment mortgage. You make payments towards the capital and the interest. So, at the end of the mortgage, you own the house.
- Interest only. You just pay the interest, so at the end of the mortgage period, you still owe the house price. This type of mortgage is becoming increasingly rare.
Just remember, there is no need to panic. Being armed with as much information as you can will help. Then, even if you are on a low income, or have bad credit, there are options available to you. See bad credit mortgage for further guidance. Remember to enjoy the experience, don’t let stress and worry ruin the excitement of buying your first home.