You’ve Had Enough Of Renting So Let’s Look At How To Get You On That Elusive Property Ladder
What You Will Need To Be Able To Get Your First Mortgage
How The Amount Of Deposit You Have Affects Your Ability To Obtain A Mortgage
If you want to buy a new house then you will need to have a deposit to put down. This deposit is in addition to any fees that you will have to pay such as stamp duty and legal fees. The days of 100% mortgages are well and truly behind us so you are going to need a deposit of at least 5% of the property price in order to get a mortgage. If you are lucky enough to have more than this then it is a good idea to use it; the bigger the deposit the better the rate that the lender will be willing to give you.
Generally, you will need to put down a deposit in 5% ‘chunks’ in order for your increased deposit to result in a lower interest rate payment so if you can manage 10%, 15%,20 or 25% then go for it. If your extra money only results in a deposit of 8% of the purchase price then this won’t result in a lower interest rate, although the mortgage payments will be slightly lower due to the slightly smaller mortgage.
Quite often your deposit will come from the bank of mum and dad and most lenders are happy with this although you may need a letter from your folks confirming that the money is coming as a gift with no strings attached.
Using The Help To Buy ISA To Increase Your Deposit
In the 2016 Budget the government introduced help to buy ISA’s which are designed to assist first time buyers with saving a deposit for the purchase of their first home
How The Help To Buy ISA Works
The Help To Buy ISA effectively increases your deposit by 25% with a maximum bonus of £3,000 per person so £6,000 additional deposit is available if you are buying with a partner.
There are some restrictions with using the help to buy ISA
- they can only be opened if you are under the age of 40
- monies have to be used for the purchase of a property in order to obtain the bonus
- you have to be at least 16 to open a help to buy ISA
- you have to be a first time buyer and not owned a property before
- the property you buy cannot be worth more than £450,000 (£250,000 outside London)
- you have to buy to live in the property and the money cannot be used for an investment property
- if you don’t use the money to buy a property you will lost the bonus
Calculating Income When Getting A Mortgage
If you want to get a mortgage then you will need to have provable taxable income. If you are employed this will come in the form of payslips, if self employed then you will either need copies of your accounts or you will need to produce copies of your SA302 – this is the official confirmation from the Inland Revenue of the amount of income on which you paid tax.
Other forms of income which may be acceptable forms of income include child benefit, child tax credits, income from pensions or rental property and maintenance or money from the child support agency. Different lenders have different policies towards what forms of income are acceptable so speak to your mortgage adviser to find out what income will be acceptable.
Generally, the maximum mortgage you will be able to obtain is five times the total of your taxable income. However, this varies between lenders and can also be affected by how the lender assesses your ability to afford the mortgage which can in turn be influenced by any liabilities you have and your credit score.
Existing Liabilities And Your Mortgage Application
When calculating your borrowing capacity a major factor taken into account will be any liabilities that you may have, such as loan repayments, outstanding credit cards, hire purchase agreements as well as any other monthly committed expenditure you may have such as school fee payment.
Existing debts or committed spending is likely to affect your ability to afford the mortgage and will result in your borrowing capacity being reduced. Again, different lenders calculate the effect of liabilities on borrowing capacity differently so speak to your mortgage adviser to assess which lender will give you the mortgage you require should you have outstanding loans, credit cards or other commitments.
Your Credit Score And How To Increase The Chance Of Getting Approved For A Mortgage
In order to be accepted for a mortgage you need to be able to prove your credit worthiness. After working out your affordability and estimating the amount of mortgage which you should be able to borrow based on your income and liabilities, your mortgage adviser will need to confirm that your credit score is good enough for your mortgage application to be accepted.
This will normally be done through obtaining an agreement in principle; this is a shortened application that does not cost you any money and does not commit you to a mortgage but will allow the lender to credit score you and hopefully provide an agreement in principle – this is a non binding agreement to provide you with a mortgage subject to a successful valuation of the property you are buying and receipt of proof of your income and any other requirements that the lender may have.
What To Do If You Fail A Credit Score Or Have Poor Credit
If you have failed a credit score or believe that you have poor credit then the first thing you must do is to contact the main credit reference agencies and find out exactly what is on your credit report. The main credit reference agencies are Equifax, Experian and Call Credit.
Each credit reference agency will allow you to obtain a copy of your credit report for a small fee and your mortgage broker can use this report to see what credit problems there are. You may also be able to improve your report either by removing bad credit which has been put on your file in error or by actively improving some of the factors which can improve your credit report such as ensuring you are on the voters roll.
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