Whatever goals you pursue: buying a house for the first time, moving or just refinancing a mortgage loan – there are various transaction options from hundreds of lending institutions in the UK. Making a mortgage is a huge financial obligation, and none of us can afford to make a mistake. If you are not ready yet to make a long-term commitment, then a personal loan is ideal for you. With it, you buy extra time for a regular mortgage.
What is a mortgage?A mortgage is a loan to buy real estate or land. Basically, it takes 25 years, but the terms can be either shorter or longer. The loan is secured by your home until it is fully repaid. If you cannot pay the full amount, the lender has the right to take ownership of your home and sell it in order to return your money.
Types of borrowers to consider
If you understand your type and requirements, you can choose the mortgage that is most suitable for you. Here is the list of types of borrowers:
- A newbie is a borrower who has never taken a mortgage. If you are about to buy your first house, this is your case.
- Homeowner – the borrower who owns the property under a mortgage or without it.
- Refinancer – a borrower who owns property under a mortgage and who wants to refinance.
- Large borrower – a borrower looking for a mortgage worth over £ 500,000.
- A shared owner is a borrower who owns a share of the property because he cannot afford to buy all of the property. That is, with the help of a mortgage you redeem some share of the property, and the housing association or local government buys the remaining share. For a share which does not belong to you, you pay a rent. Over time, you can gradually redeem additional shares until you own all the property.
After you understand to what type you belong, it becomes easier to estimate your chances of getting your fist home loan.
How much can you borrow and other peculiarities of home loans
The amount if home loan will depend on the amount of your deposit, the amount of your earnings and the amount that you can pay monthly. Lenders have different lending rules, so it is important for each borrower to choose the right lender and the right mortgage.
Ratio of loan amount to collateral value may vary. With the help of state programs, for example, New Buy Deal, now you can borrow up to 95% of the cost of housing. Without such programs, many lenders offer up to 90% of the value of collateral.
Financial solvency of the borrower is also very important. Since April 2014, under the new requirements, lenders are obligated to evaluate borrowers for their ability to repay the loan now and in the future. In some cases, no matter how annoying it is, it becomes more difficult for people to get a mortgage, but at the same time, these rules protect the borrowers themselves.
How do lenders check borrowers for financial viability?
Such checks are often compared to stress tests. Lenders will ask you for detailed information on your income and expenses. In fact, they calculate the baseline of expenses, usually your regular monthly bills, and then proportionally distribute the balance to the monthly mortgage payments. They will also test your ability to pay your mortgage when rates increase. To do this, many take a rate of about 5-7%.Therefore, if you plan to take a mortgage, it is worth looking at your monthly expenses.
Check our your credit rating beforehand if you want to get your first home loan. Your credit rating also plays an important role in obtaining a mortgage. Many leading lenders prefer to give a mortgage to borrowers with a good, clean credit rating, so it’s always worth checking your own how clean it is. You can get rating data from a number of agencies, including Equifax and Experian. But this does not mean that you can’t get a mortgage if you have a negative rating, but most likely you will be offered an increased rate.