Property finance – making your dreams a reality
In the UK, you can get a mortgage deal which is essentially a home loan. However, this process is tricky, and a lot of criteria apply. The processing time may take longer than other loans, so patience is required. A lot of planning goes into applying for a mortgage.
The lenders are looking for numerous factors
As mentioned, the criteria for applying for a mortgage is tough, mostly because the lenders take note of numerous things. First and foremost, if your credit report – spotless credit history is vital for a mortgage loan. If you plan on applying, you must first be aware of your credit and request a report.
You need to fix any errors that are present in the report. If you have a history of missed payments, these should be cleared up. This is vital as the lender does an in-depth review of your credit report, in most cases it is the deciding factor for loan approval or rejection.
Secondly, the lender assesses the amount of money that remains with you at the end of every month; after paying bills and covering all living expenses. This gives them an idea of your financial situation and if you can afford to pay the mortgage.
They also look at your employment status. You must be a full-time employee who earns a fixed income every month. It is advantageous if you are employed by the same organization or persons for a long period of time (years), as this is a representative of your financial stability. This also gives an indication that you are in a position to pay back the loan in due time.
Lastly, they ensure that you are not in debt when applying for a home loan. If you have overdue loans, it would be difficult to keep up and repay the loan, and thus the risk is involved. These outstanding debts also include credit card overdrafts.
Knowing how loans work is important
Once you are sure that you are eligible to apply, you must also know what exactly you need. You must know which property you are applying the loan for. After that, you need to pay an advance or a deposit. Some lenders require you to pay a 5% advance on the value of the property that you have in mind, while others require a 10% advance.
The higher the deposit, the better is the offer that the lender makes you and the better your chances of home loan approval. With a larger deposit on the property value, you might also get lower interest rates on your loan, making it easier to make repayments.
Once you pay the deposit, the remaining percentage should be used to calculate your repayments. This is important as it allows you to see your affordability and plan better for the future. With this knowledge, you can plan a budget and know for sure if you can repay the loan.
Paying a large deposit is important. If you are unable to manage it at the time, you can always seek help from a trusted family member or a friend to help you. A large deposit does not only seal the deal but makes the repayment of the loan better for you.
There are additional costs involved
When taking out a mortgage, you should be ready to pay extra fees that come with the process. For instance, you must pay the mortgage company that will visit and assesses the property you chose. Then, an independent surveyor is hired to give you a report on the house condition.
This becomes more expensive with larger and older houses that have structural problems. Following this, you pay for Local Authority Search. This is to make sure that no undesirable building plans are in place.
After this, you have to pay a fee to a solicitor or a conveyor. These people take responsibility for all legal matters and preparing and sorting the important documents. As many technicalities are involved, hiring them is highly recommended.
You must be aware of types of loans
There are two major types of mortgages. The first being fixed-rate mortgage. In this case, the interest rate is fixed for around 2-5 years. With an unchanged interest, you can plan your finances better, however, this type of loan is expensive.
The second category is a variable rate mortgage. In this case, the interest rates change and as a result monthly repayment changes. This is suitable for those people who can afford this increase. However, in the case of a decreased interest rate, a lot of money can be saved.
In this way, a variable rate mortgage is cheaper than a fixed-interest rate mortgage. In a nutshell, much planning and consideration go into home loans. One must have a clean credit record and a financial situation that will allow them to repay the loan.