Getting on the property ladder is exciting but equally daunting. It is a big move that requires deliberation. Mortgages do not work like short-term loans that are featured with same-day fund transfer and instant approval. Even though many options are available out there, it can take a long time because you will have to solidify your credit report and arrange a minimum deposit size.
Many lenders promote their product as the “best mortgage for first-time buyers”, but when you dive into it, you find that not all options are suitable for everyone. As financial circumstance changes, the deal will also change accordingly. Here is how you can buy a mortgage at competitive interest rates:
Do online research to find a mortgage lender
Before you get it off the ground, you should have your credit score in perfect condition. If your credit rating is less-than-perfect, you are likely to have your application turned down. If any lender approves, you will likely to pay high-interest rates. This is the first thing that any lender will consider, so make sure that your credit rating is good. With a good credit score, you will be able to negotiate for a good deal.
Then, make online research to make a list of lenders whom you would like to contact. Use online comparison tools to know annual percentage rate (APR). Do not forget to consider the processing fees. While comparison, if any doubt flashes through your mind, do not hesitate to clear it. It is important that you have a clear idea about interest rates along with fees so that you do not get disappointed when you apply for a mortgage.
Consider the deposit size
The size of the deposit plays a paramount role to decide how much the mortgage will set your back. The minimum deposit size should be 5% of your house value that means loan-to-value will be 95%. The higher the LTV, the higher the interest will be. Since you have to pay the interest on the amount you borrow, it is better if your deposit size is higher. Any missed repayment can cause you lose your property.
Your repayments will be much more manageable if you try to arrange a larger deposit. The ground rule of thumb says that you should have at least 20% deposit to get the deal at a lower interest rate. Some mortgage lenders can also allow you to borrow a mortgage even if your credit rate is average. In that case, they will ask you to have a deposit of at least 40%.
Check whether the mortgage is affordable
Before you take the plunge, you must know about your affordability. First time buyers mortgages are not like unsecured loans where you do not need to be afraid of losing the collateral in case you fall behind repayments. If you do not want to risk losing your house, you must calculate your affordability. Use online calculators. You just have to fill out your income, financial commitments like debts, and the amount you will submit as a deposit. The calculator will tell you the total cost of the mortgage and monthly repayments. Make sure that you have some savings apart from the deposit size that you can dip into when an emergency pops up after taking out a mortgage. Many borrowers end up falling short on cash after borrowing the mortgage in case of emergency. If you take out a loan, it will add up the additional burden on your pocket. Make sure that you manage your finances as efficiently as possible before and after taking out the mortgage.
Look for hidden charges
Not all but a few mortgage lenders can charge additional fees and it will have been very late by the time you discover it. Most of the buyers get to know about it at the time of signing the contract. This is usually happening in case of a mortgage broker. They overcharge because they earn a commission. It is better if you directly contact a mortgage lender. Since you are directly applying to them for a mortgage, you will not have to pay any hidden charges.
If you are looking to get a first-time mortgage, you should focus on having a good credit score and a deposit size. Follow the aforementioned tips so that you get the best deal.