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How Do I Apply for a Mortgage?

Updated on August 25, 2017
Stella Kaye profile image

Stella runs her business from home and has written several articles on working from home, home finance and entrepreneurial skills

Monthly Mortgage Commitments

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Mortgage Money Matters

There are few people who can afford to buy a house outright so a mortgage needs to be arranged by your financial adviser or mortgage broker. This is a loan secured on your property and if you don't pay it back to the building society they will take your house back and sell it to someone else - simple as that. They can't lose ever - so be careful. They will sell the house for less than it's really worth to claw back their cash and you'll have to make up the difference. Repossession also means your credit score will drop to zero and you won't be able to borrow anything again for at least six years.

At the end of the mortgage, you'll have paid back the sum borrowed over a number of years - plus lots of interest. This is how building societies make their money and every homeowner, landlord or property developer with one of these loans has to dance to their tune. The general idea is that the property eventually increases in value so much that you don't really mind that you've had to pay back to almost twice much as you borrowed!

So a mortgage or home loan means the long-term borrowing needed to acquire a property. You can choose how long a period the loan will be in force but the usual term is between twenty and twenty-five years. The length of the loan and the amount of the payment due each month can be adjusted to fit as closely as possible with your earnings, taking into account the amount you are prepared to put down as a deposit. Quite simply the figures have to add up

Gone are the days when financial institutions would lend money to virtually anyone with no thorough proof needed that they could actually afford to borrow such large sums of money; nowadays you have to jump through an infinitesimal amount of hoops to meet their lending criteria and you might find it virtually impossible to secure a mortgage on your own.

Thus, getting a mortgage offer is no longer as easy or straightforward as it once was prior to the 'credit crunch' and this in itself can be a daunting factor for those wanting to purchase their first home whether it will be for them to live in or as an investment for the future. A home will be the most expensive thing you'll ever buy, so finding the right home loan is as important as finding the right property.

Hundred per cent mortgages where no down payment was needed are no longer commonplace; it's now more likely that first-time buyers will have to find a hefty twenty-five per cent of the purchase price as a deposit on a property and also incur huge fees that are added to the loan.

There Will be Many Obstacles in Your Path Before You Get the Key to the Door!

A place to call your own
A place to call your own | Source

Building on Your Future

Don't be disheartened; - there is still a plus side; property will never be as affordable again so now is the time to buy. If you have a steady income and can get the right advice from an independent financial adviser or mortgage broker then you are halfway to becoming a home-owner. An independent adviser is not tied to any particular mortgage company and will be able to find you the best possible deal to suit picked from a vast selection of those currently available.

Mortgage companies need to be as certain as possible that they will get their money back. They don’t like to repossess properties as the cash will be tied up in the house so they can’t lend it to someone else until it is sold. Thus the checks on your income performance and credit score are far more stringent than they were in times past. There used to be a tendency for mortgage companies to be over lenient and over lend to borrowers even lending up to five times the amount of personal income but things have now changed and they will take every step to ensure that you meet with their current lending criteria.

Don’t be dispirites if you are refused by one particular lender. Keep on trying as what will satisfy one financial institution may not satisfy another.

You must be certain that the monthly repayments are affordable and also be wary of the possibility of interest payment increases over the term of your loan. The key is not to overstretch yourself when it comes to mortgage finance. Buying a house is a step on the ladder but not a step to be taken lightly. You may be eager to become a home-owner but be sensible and realistic with regards to your borrowing limits. Owning a home comes with a whole set of commitments and not just the ones you have pledged to the loan company so all monetary outlay has to be factored in. You don’t want to find yourself with a brand new home but with no money left to put bread on the table. Your income and expenditure need to balance or you will soon be in trouble and not be able to meet your monthly payments.

With the help of the internet there are plenty of on-line calculators which will give you an idea of what your monthly repayments are likely to be; these can be invaluable tools that you can use at your own leisure before contacting a mortgage adviser so you can gauge exactly what your financial commitments will be. Never rely on rough estimates when it comes to purchasing property.

Don’t waste your time looking at properties that are outside of your price range unless you have wealthy parents who are willing to help out financially with a gifted deposit. The ‘bank of mum and dad’ can make a vast difference in providing some of the deposit but you can’t expect your parents to subsidise you on a permanent basis if you find you have taken on too much. Don’t forget larger properties may mean more space but they also mean bigger bills.


'Home Sweet Home'

'Home sweet home'
'Home sweet home' | Source

Put your Finances in Order

Making sure your credit score is favourable is vital when applying for a mortgage, Lenders need to be reassured that they'll get their money back and will check your credit score to assess the risk. If you have a poor credit history, don't despair - there are ways to improve or repair it. Your mortgage adviser will be able to help you with this but there is no point in applying for a home loan when you have vast amounts of unsecured borrowing such as credit cards. Try to reduce the amount of unsecured borrowing you have in the months before any mortgage application is made so that you stand the best chance of being accepted by the mortgage company. Signing up for a reputable online credit score checking facility such as Experian or Noddle will help you immensely and will show you the details about you that lenders will see.

Mortgage Advice from Llyods Bank for UK Residents

First-Time Buyer Information in America

Incentives for first time buyers

First-time buyers can benefit from builders incentives and other various schemes that will help considerably with keeping costs to a minimum.

There are many types of mortgages from fixed rates to trackers, interest only or capital repayment and new deals are being offered nearly every day in the highly competitive market that is mortgage lending. The decision is yours as to which one offers the flexibility required to suit your circumstances. Each type of mortgage has its own advantages and drawbacks so finding the right one is important so you don’t make mortgage mistakes which will be costly to rectify.

If you're a first-time mortgage applicant, do your homework first to find and compare the best offers available; here are some links to get you started: money supermarket mortgages for those in the UK and bank of America home-loans for those in the USA.

As with all investments, the value of a property can go down as well as up; although this is unlikely to happen in capital cities such as London. It's a completely different story in provincial areas where it's not unknown for property to decrease considerably in value. Many folks may then find themselves in a situation known as 'negative equity' when they actually owe more to the building society than the house is actually worth. There's absolutely no way of guarding against this and they can only hope for the market to recover in their particular region.

In conclusion, do your homework first and get the proper advice from property professionals before committing yourself to a mortgage. Be realistic and be aware of the pitfalls. If you're buying a starter home with the view to purchasing a larger property in a few years time when you start a family, it might be as well to ensure your mortgage is fully portable when you move - to save you paying a whole new set of arrangement fees.

After reading this article do you have more confidence in securing a mortgage?

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© 2015 Stella Kaye

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