A mortgage application often feels like one of the scariest things in life. It’s basically what stands in the way of homeownership for millions An unsuccessful application will set you back a few months, possibly meaning you miss the home of your dreams.
That’s why it’s crucial to be informed before you begin your application. We’ll go through three things you need to take into consideration ahead of applying for a mortgage:
What type of mortgage do you need?
Unfortunately, there are many types of mortgage you may need. This includes fixed-rate and standard-variable-rate mortgages, interest mortgages and so on. These categories refer to how you repay your mortgage, but you also need to ensure you’re applying for the right one.
For example, if you’re buying a house to own and live in, you’ll need a standard mortgage. On the other hand, if you plan on renting out the property, you’ll require a buy-to-let mortgage. Then within the buy-to-let category, you may need a limited company buy-to-let mortgage instead of a personal one. More and more landlords are registering as limited companies, which has led to an increase in lenders available with these loans. It’s worth looking into this if you need a buy-to-let mortgage as it can help you enjoy tax relief benefits.
So, decide on the mortgage type before you proceed with anything else.
What state is your credit score in?
Don’t attempt a mortgage application unless you’ve checked your credit score. If your score is incredibly bad, you won’t need to focus on saving for a deposit just yet. Lenders won’t dish out mortgage loans to people with bad credit as they’re deemed untrustworthy.
Annoyingly, we can’t say what credit score is needed for a mortgage as different credit unions use different metrics – plus lenders and banks may think differently. As a general rule, regardless of what credit checking service you use, try to aim for a good to excellent score. If you have this, you’ll be able to borrow more money while getting more reasonable interest rates.
How much can you afford to pay each month?
Finally, think about how much a mortgage will cost each month and what the maximum you can afford is. If you’re already paying £1,000 in rent every month, it stands to reason you can afford the same monthly mortgage repayments – possibly even more as you’ll no longer be setting money aside each month to save up for a house!
Once you’ve figured out your monthly maximum limit, you can play around with different deposit sizes or mortgage terms to find something that suits your budget. This may mean you need to save more money for a smaller mortgage with lower monthly repayments, or you choose to extend the term longer. You’ll pay more interest with a long-term mortgage, but the monthly payments might be more manageable.
We must also state that there are loads of other things to consider before getting a mortgage. If you start with the three things listed here, you’ll be in a better position to formulate a successful application.