If you are considering purchasing a home, chances are you’ll also be considering getting a mortgage to help you finance the buy. Buying a home is one of the largest purchases you’ll ever make; it is not something to do with having all your ducks in a row.
Before you get a mortgage, be sure you can afford to pay it off and that you understand all of the mortgage jargon that comes with. We also recommend finding out the type of mortgage and determining what you want before approaching a lender. Doing this will ensure you get the home of your dream.
What is a Mortgage?
In simple terms, a mortgage is a term used to describe a loan taken to finance the purchase of land or building. Most mortgages have a tenure of 25 years but can be longer or shorter depending on the lender and circumstances of the borrower.
The value of your home is used as collateral until the loan is paid off. That is, if you do not keep up with payments, your lender can repossess your home and sell it off to get back their money.
What to Expect
The process of applying for a mortgage typically takes place in two phases. The first phase usually involves a lot of research on your part. You’ll have to find out what type of mortgage you might need and how much you can afford.
The second phase is typically where your mortgage lender runs its own checks to determine how much they can offer you.
The Size of your Deposit will Matter
Before you can buy a home, you will need to pay a deposit. Your deposit will go towards the cost of the property you intend to buy. Why is this important? Most mortgage lenders offer lower interest rates to individuals with larger deposits. This is referred to as Loan to Value (LTV), which is simply the percentage of your home’s value you own, compared to the percentage value that is collateral for your mortgage.
If you have a lower LTV ratio, your interest rate will be lower because the lender takes less risk – with the lowest rates given to homebuyers with deposits of up to 40%.
Things to do Before Applying for a Mortgage
- Get your financial records in order
One of the first things that will be looked at by a bank is the state of your finances. So, before you apply for a mortgage, take the time to get your affairs in order. Overdraft, referral charges, frivolous credit card charges, car loans, direct debits to a gambling account; all of these can hurt your prospects of getting approval for the amount you request.
A personal loan, like a car payment or college fees, will also affect how much mortgage you can get, so try to pay these off as much as you can before sending in your application.
- Compare mortgage rates from different lenders
Comparing the mortgages rates from different lenders before settling for one will save you money in the long run. Why? Different mortgage lenders will charge different fees and because you’ll be paying for most of the fees associated with buying your home, it is important you get a great deal from the beginning. To compare loans, check out the annual percentage rates of the lenders, which also includes their fees.