Finding a home you like enough to buy can take ages. Which makes it all the more heartbreaking if a delay causes the sale to fall through. Today we will focus briefly the helpful information on how to get a mortgage loan.
In a market that is still rife with gazumping, it’s vital to push your purchase through as quickly as possible. So it makes sense to get much of the legwork for a mortgage done in advance. Some people even like to get a mortgage agreed in principle before they start looking.
Having a mortgage agreed in principle can tip the balance in your favor if a vendor is deciding between two potential buyers.
How to get a mortgage loan? Save a deposit
The first thing to do before getting a mortgage is to save enough money for a deposit. Although some banks and building societies will lend the full cost of a property through loans known as 100 per cent mortgages, these aren’t common, and tend to have higher interest rates.
Also, if you have little or nothing in the way of a deposit, the lender will demand you buy an expensive insurance policy otherwise known as a high percentage loan fee or a mortgage indemnity guarantee. Although you pay for this policy, it protects the lender, not you the borrower, against loss if you default on your loan.
Tip: Aim to save at least five percent of the amount you want to spend on a property. Ten per cent is even better.
Financial Advice on how to get a mortgage loan
Think about how you want to repay your mortgage. Most people choose repayment loans – also called capital and interest loans – where part is paid back every month so that the whole loan is repaid by the end of its term.
Others opt for interest-only loans alongside a regular stock market-based savings scheme, such as an endowment or individual savings account (ISA). In this case, the aim is to repay the whole loan at the end of its term with money earned in the savings scheme.
You also need to think about the length of period over which you need to repay the loan. Most people start with a 25-year mortgage, but if you have swapped loans (or houses), it’s wise to reduce the new term or you could find yourself still paying off your mortgage when you retire.
Mortgage loan! Finding a lender
Once you have chosen what type of mortgage to go for and the repayment method, you need to find a lender. If you have a good financial record – no major outstanding debts, have never fallen behind with or allowed debt payments to lapse, and have been in regular employment with your current employer for at least six months – finding a lender willing to give you a mortgage should be straightforward.
You may want to do your own homework, reading newspapers and searching the Internet for mortgage recommendations.
If your situation is more complicated – you are self-employed, have changed jobs recently or have run into problems with debts in the past – your choices are likely to be more limited.
Whether you are confused by the enormous choice of loans on offer, or worried your financial record may put lenders off, you could find it reassuring to seek help from a mortgage broker or independent financial adviser (IFA) who specialises in mortgages.
IFA Promotion, a body set up to promote independent financial advice will provide you with a free list of three IFAs in your area who advise on mortgages.
Before you agree to take on an independent financial adviser or mortgage broker, establish whether he/she intends to charge a fee, and if so, how much. Some mortgage brokers will work for a small commission paid by the lender for organising the loan.
Mortgage loan! How much can I borrow?
The lender or mortgage broker will be able to tell you how much you can borrow. Lenders use three factors to calculate how much they are prepared to lend you.
- Your income.
- Your existing debt.
- The size of your deposit.
The lender deducts your monthly outgoings, such as payments for any on-going debts (including personal loans, hire purchase, and maintenance payments). They then multiply the resulting figure by three and a half. If you are buying with a partner who is earning then you add their annual income on top. If the figure is calculated as a joint income then it is two and a half times the joint salary.
Some lenders offer slightly higher income multiples, particularly to people working in careers where earnings are likely to increase rapidly in the future.
Tip: Think carefully before you mortgage yourself up to the hilt. Interest rates are very low right now but could you afford to pay a large mortgage if they went up?
Applying for a mortgage loan
The traditional method of applying for a mortgage has been to go into the local branch of your bank or building society for a face-to-face meeting. But there’s no real need for this. Many lenders now accept applications via the telephone or Internet.
To speed up the application process, have ready your most recent P60 form, your three most recent payslips or your employment contract. If you are self-employed, you will normally need to provide accounts for the past three years.
Tip: Check whether you will have to pay for your own property valuation, legal fees and whether the lender charges an arrangement fee. It’s important to have the money lined up for these at the outset.
All lenders insist that your house is insured for the cost of rebuilding it and some will make the purchase of their own buildings and contents insurance package a condition of lending you a mortgage. This can add up to 0.25 percent of the cost of the loan.
If your lender does not require you to buy its insurance, but simply recommends it, you will almost certainly find cheaper cover of equal quality by shopping around. Your lender may charge you a one-off fee of £25 in these circumstances or raise the interest rate on your mortgage to cover the commission it is losing out on.
An insurance broker can get quotes for you from a wide range of insurance companies. Look in your local Yellow Pages for someone who is registered with the Insurance Brokers Registration Council. Also, get quotes from a few of the telephone and online brokers and insurance companies.
Mortgage Payment Protection Insurance
Your lender may also suggest you buy Mortgage Payment Protection Insurance (MPPI). This is insurance designed to pay your monthly mortgage payment for a limited period – usually a year – if you are unable to work through illness, disability or redundancy.
- Save a deposit
- Think about how much you can afford to pay each month on your mortgage
- Read up on the different types of mortgages available
- Be prepared – get as much paperwork as possible done in advance
- Always read the small print – both on your mortgage and any insurance you intend to buy. It could save you a lot of money in the long run