Many people believe property and real estate can be a good place to invest your money. Of course, not everybody has enough cash up front to buy a house or apartment. This is why mortgages are an essential part of this market. Without the funds, you cannot invest. You might be looking to buy a first home for your family or something that you can rent out as a landlord. Whatever your situation or purpose for buying, you need to be certain that property will make money for your future. So how can you make sure you get the best mortgage for the job?
What The Bank Wants From You
As with any loan, you will be credit checked when you apply for a mortgage. However, this credit check may dig a little deeper, and the results could affect the product a lender eventually offers you. Most banks will also want to see at least three months of your bank statements. If you’re self-employed, you may also have to hand over three years of tax returns and accounts too. Some mortgage lenders will write to your employer for a reference. Others will want to interview you personally.
What they’re looking for is evidence that this mortgage is affordable and puts you in a better financial situation. If you’re renting, they will expect your mortgage repayments to be cheaper than your rent. Of course, this isn’t always the case. You can still get a good quality mortgage product if you show that you will be able to afford the mortgage easily thanks to a secure and proven income.
How To Give Them What They Want
Spend at least three months cleansing your bank account. Cancel your TV subscriptions, pay off your outstanding loans, and clear any credit contracts like phone contracts that you don’t need. Budget all your outgoings and be prepared to show that budget document at your mortgage interview. Keep purchases to a minimum to show you’re not indulging in extravagant shopping trips or spending unnecessarily. You can try discount shopping by using websites like DontPayFull.com to reduce the cost of your purchases. The bank wants to see that you are responsible and careful with your money.
You will also have to provide around 10% of the purchase price of the property yourself. It’s a good idea to have a healthy savings account in addition to this. After all, you’ll have arrangement fees, lawyer fees, taxes, renovation costs and moving costs to pay. If you’ve got all this ready to show them, and you’ve kept your credit history squeaky clean, you could be eligible for a low rate mortgage.
The Mortgage You Want
The mortgage product you want is likely to be the one with the lowest interest rate and the fewest repayment years. This will bring the bottom-line repayment figure down. Of course, to make it more affordable, you may have to increase the years over which you repay as this could bring down the monthly repayment amount. You also need to consider what you want to do with the property. If you’re hoping to renovate and flip, you will want a mortgage you can get out of in a short period of time. Fixed rate mortgages often last for a two to five year period. Repaying or changing the terms inside of that time frame could incur additional penalty charges.
If you wish to build up a property portfolio for renting out, you need a different kind of mortgage product altogether. You will certainly need different insurance policies. In some places, you will need to make certain alterations to the property to meet regulations. If you purchase older properties, they may be listed on a register that forbids you from making certain changes. Unusual construction or materials, and even certain geographic locations may make it tricky to get the cheap mortgage products you’re after.
Getting on that first rung of the property ladder isn’t easy. Once you have a mortgage and you’ve proven you can make the repayments, you may find it easier to get better rates. This is why some properties are classed as ‘first-time buyer properties.’ They’re easier to get mortgages for, and buying should be a simpler process.
Getting Started
As you can see, it takes time to prepare your finances for a property purchase, especially if you’re chasing the very best mortgage products. Take the time to clear any other loans or credit you may have. Some banks will tally up existing debts and deduct that figure from the maximum amount they will lend you.
Make sure your income is steady and proven. This means sticking with the same employer for at least a year. Your position with a company is far more secure after this time frame and banks like that! Make sure the company you are with is also secure and that your employment contract is not due to expire.
Start stripping bare your outgoings and create a realistic monthly budget. Within that budget include a savings pot that is separate from the cash you’re putting away for the house deposit. This shows you have money you can set aside for emergencies like boilers breaking down or windows breaking. Keep spending to a minimum and keep it transparent so the bank can see the types of purchases you’re making.
Now you know what your budget is, you should have a better idea how much you can afford to spend on mortgage repayments. You can check online how much some banks and lenders might offer you. This figure rarely exceeds four times your annual gross income. In many cases, it is limited to about 3.5. If you are buying with a partner, then your total joint income may be considered. Their credit history will also be considered.
Are you ready to start hunting for that perfect investment property? Until you have a property in mind, you can’t get a mortgage. Speak to a local property agent or realtor so see what is available in your price range. This too can take some time, but as a first-time buyer, you might find opportunities for making a good deal. Good luck.
