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When you buy a home, you will almost certainly need to have a mortgage to be able to do so. They are house loans you can take out to pay for the remainder of the property price after you have laid down the deposit. I don't think I know anyone who hasn't used a mortgage to purchase their home! However, getting a mortgage can be surprisingly complex, but don't worry! I am currently going through the process of buying my first home! There has been a lot to learn, and I'd love to share some tips with other first-time buyers. Here are some things you need to know before getting a mortgage and how to increase the amount you can loan.
Check & Build Your Credit
First of all, you need to make sure that you check your credit score before you start applying for any mortgages. For those unsure, a credit score shows a bank how reliable you are with repaying money. It's a number up to 999, and you want the highest score possible. You can check your credit score on websites such as Experian or ClearScore. They may even give you tips on how to boost your personal score.
You need to know what kind of position you are in so that you go into the process fully informed. It is not always clear how good your credit is until you check. It might have changed considerably since you last looked, even if not much has changed in your general financial position or circumstance. There are options if you have bad credit, and knowing your credit score will allow you to pick the best options. If you have some time before your mortgage application, there are some ways to build your score!
- Pay your bills on time. You can set up a direct debit to ensure you don't miss payments. Late payments are reported and can affect your credit score.
- Use a credit card. You can get credit building cards but make sure you pay them off. It will look favourable if you use less than half of your credit allowance and pay it off on time.
- Repay any outstanding accounts. Late payments can last for up to 7 years on your credit reports. If you have any credit, pay it off as soon as possible. It will stop further late payments and may help you to improve your score.
- Avoid opening new credit lines before your application. Every time you apply for a credit card or car finance, it will show on your credit score. Make sure you keep your record as clean as possible and only open things you really need.
Save A Deposit
You have to put a deposit down on a property when purchasing it. It's usually 10% of the house value, but you can increase the amount you put down. Your mortgage will be the remainder of the house value plus interest. The larger deposit means you'll pay back less, although it can be hard to save more than 10% of the property value. If you are being gifted your deposit, there are forms you'll need to fill along with the gifter. Saving a deposit is where many people struggle.
Here are some tips for saving a deposit. I managed to save a lot as an apprentice. I don't have the highest salary, but I am lucky that I don't pay rent at home. My first tip is when living from home, see if you can pay a low amount of rent. My parents couldn't afford to give me a deposit or save up any rent I was paying to give back later. Instead, I had to save what I would be paying in rent. This was their way of helping me, and I know that now everyone has this luxury.
- Find a side hustle and put the profits into savings
- Cut down on expenses such as holidays, days out and takeaways
- Use a LISA for a government bonus
- Put your salary into savings as soon as you're paid
- Round up your purchases and put the money into savings
I know that saving for a deposit is hard. It's not as simple as cutting down on avocado and takeaways. I also think you should be able to enjoy your life. I saved viciously for my deposit. I'm not a big spender, so I could save around £1000 a month and live off my side hustle money. I also used a LISA and maxed it out for the highest yearly bonus.
Your Budget Matters
Another thing you should look into before you get a mortgage is your current budget, as well as what kind of budget you think you could live on after the mortgage too. This must be as detailed, accurate and honest as possible. You'll want to know what money you have to live on. It is always worth revisiting your budget monthly. You don't want to be left with nothing for food and living.
Cut out anything that might get in the way of a perfect financial situation for your household. See if there is anything you regularly spend a lot on. When going through the budget, my partner and I realised we spend a lot on going out and takeaways. We can afford it while living at home but need to reduce it when we move out. Lenders will ask for bank statements from you. It looks favourable if you show that you budget and don't go overdrawn. They will also ask for up to a year's worth of savings account statements to show that you can save regularly and have money to put aside.
Related: How To Manifest Your Financial Goals
There Are Options For Everyone
Even those with poor credit can find borrowing solutions, so you should never feel at a loss. You can try to boost your credit score, but there are also banks which consider your circumstance. You need to keep your options open, especially if there is anything different to the typical home buyer. That might include bad credit, but it could be a range of other situations, like being a freelancer.
There is something called specialist lending, which is mortgages for non-traditional situations when you still need a loan to pay for your home. With these options being out there, you can at least know that you can get funding of some kind. It's also worth considering the schemes you can use if you can't get a high enough mortgage. Government schemes such as "shared ownership" and "help to buy" can get you on the ladder quicker. Make sure you read the terms and ensure it's a mortgage you want to use. They are beneficial schemes, and there are ways to make them work for you. You may need a specialist lender for those schemes too.
Understanding Interest Rates
All mortgages have interest attached to them. It's worth knowing your interest rate, so you know how much you'll pay each month. One of the main things you need to know about is the different interest rates. There are fixed interest rates, which are often a little higher but cannot change over time, regardless of the outside situation. Your interest will be fixed for a few years, usually 3-5. There is also variable interest, which can start lower but can increase. It almost certainly will at some point or another.
On top of that, you need to look into the interest rates themselves - the actual figures - so you know how much you can expect to repay. You can use a calculator to see what your monthly repayments are going to be. The more aware you are, the more likely you'll choose a mortgage that you can actually manage to repay. It makes it all so much less stressful for you from the start! You might want to pay back more each month. Overpaying your mortgage can help you pay it off quicker, but there is a limit to how much you can repay each year.
Getting a mortgage is a long process. It's taken about a month to get to our house, and we still haven't finished! Getting your first home is a big step, and you'll learn lots along the way. There are so many forms and things I didn't realise I'd have to do when getting a mortgage. I will continue to update this post as my home-buying journey continues! What tips do you have for getting a mortgage? I'd love to hear how long it took you and how you found the process!
