For most people buying a property the biggest ongoing cost is the mortgage - simply a loan secured against a property. You can't sell the property without paying off the mortgage first and if you don't keep up the repayments the lender can repossess the property.
Because of the credit crunch, it is vital that you secure a mortgage with a lender before starting the searching process. This way, when you find the right property, you will avoid being beaten to it by another buyer and you will also be in a much stronger negotiating position.
Generally, the best mortgage deals are available to people who put in at least 15% of the property's value, leaving the mortgage company to lend the other 85%.
If you put in less than 10%, you may have to pay a "Higher Lending Fee" (sometimes called a Mortgage Indemnity or a Mortgage Guarantee Charge) which will add to the cost of your mortgage.
As a rough guide, providing the amount you are borrowing is at least 85% of the property value, budget to add 1.75% onto the Bank of England base rate, which will give you a ball park figure of the likely annual interest rate.
Finding a Mortgage
You may also be able to get help from your parents if they are prepared to act as a guarantor on a mortgage.
How a Mortgage Lender Assesses You
Mortgage lenders will take your credit history into account as well as your incomings. They are particularly interested in how often you have defaulted on other payments, your existing credit agreements, if you have any County Court Judgments or if you have been declared bankrupt.
If your credit rating is poor, you may be able to get a Sub Prime Mortgage deal where you'll probably pay a higher mortgage rate. Alternatively, you could wait until your credit record has improved. With mortgage lenders tightening their criteria, 'risky' borrowers will unfortunately find it increasingly difficult to obtain finance.
It's possible to check your credit reference file with the UK's main credit reference agencies: Experian, Equifax or Callcredit. Access to your file only costs a few pounds. If you see anything that's wrong you can challenge its validity.
If you are self-employed you'll probably have to show the lender income from your business for at least two years and if you are a contract worker, you'll have to prove to the lender that your earnings will continue.
For couples, the lender will look at both incomes. Some lenders will consider groups of up to four people buying together. Think carefully before you buy with friends because each of you will be "jointly and severally liable" meaning you will have to pay the mortgage if one of the others doesn't pay their share.
If you can prove your income is about to increase substantially - perhaps you'll soon qualify as a doctor - some lenders may be prepared to lend more.
While a lender will happily work out what they think you can afford, remember you need to be comfortable too. Make sure you will be able to deal with unexpected extras that crop up. Key questions to ask yourself are:
Choosing a Mortgage
Once you have read through all the mortgages on offer, you are ready to compare mortgages. Here are some tips:
Once you think you've found a mortgage deal you like, the next step is to get a Mortgage in Principle agreement from a lender.
Provided by lenders as a statement that this is what they are prepared to lend the named borrowers subject to approval of the property
To do this they'll need to do a full credit check on you. As each check leaves a "footprint" on your credit file, it's best not to do too many as it can hurt your credit rating.
A Mortgage in Principle will show agents and sellers that you are a serious buyer with a mortgage lined up - and put you a step ahead of other buyers.
Your mortgage company will provide a summary of the mortgage agreement, called the Key Facts Illustration showing the total cost of the mortgage, the interest rate, whether there are any penalties for early repayment and any other special conditions.
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