As a first-time buyer, there are, essentially, two steps to getting a mortgage. Firstly, you need to work on making yourself an attractive prospect to lenders. Secondly, you need to decide what kind of mortgage you want. Here is a simple guide to help.
Making yourself an attractive candidate to lenders
The exact qualification criteria for any mortgage will depend on the mortgage itself. With that said, lenders will assess candidates on similar points. This means that the general approach to making yourself an attractive mortgage candidate will apply to all lenders. Here are the key areas you need to address.
Deposit
When it comes to deposits, the golden rule is that bigger is better. With that said, there may be limits as to how much of your deposit can be gifted to you. Rules on this vary by lender.
Saving in a Lifetime ISA (LISA), can be a useful way to boost your deposit. Just remember that LISAs can only be used to buy a first-time property or pay for retirement. If you withdraw money for any other purpose, you will be penalised.
Affordability
Affordability is essentially calculated on three factors. These are, the loan-to-vehicle (LTV) ratio, your current and predicted income and your current and predicted expenses. The LTV ratio will be set by your deposit and the price of the home you wish to buy. This leaves your income and expenses.
Keep in mind that lenders will want to be reassured that you can afford the mortgage over the long term. This means that stability generally works in your favour. Try to avoid making any changes in the 6 months prior to applying for a mortgage. Certainly, do your best to avoid making any drastic ones.
Also, remember that lenders will usually ask to see 6 months of bank statements. The main reason for this is to confirm that your financial standing is what you say it is. Checking your bank statements will, however, also give lenders a good idea of how well you manage your money overall.
This means it’s advisable to be careful where you spend your money in the 6 months before applying for a mortgage. In other words, even if you can afford to splurge, it’s generally safer not to. You can always do it later, after you get your mortgage.
Credit record
Building up a credit record takes time so you should start working on it as early as you can. As you come closer to applying for a mortgage, keep a particularly sharp eye on your credit record. You need to identify them as quickly as possible to give yourself the best chance of getting them addressed before you apply.
Deciding what type of mortgage is right for you
These days, if you’re buying a home to live in, it’s largely taken for granted that you will want a repayment mortgage. For completeness, you can still get an interest-only mortgage. These are, however, now very niche. This means that your real choice is between a fixed-rate and a tracker mortgage.
As the names suggest, fixed-rate mortgages have a fixed interest rate for an agreed period. Tracker mortgages are set at a certain level above the base rate. They move up and down as it does. Objectively, neither type of mortgage is better or worse than the other. Fixed-rate mortgages are not necessarily more economical than tracker mortgages (or vice versa).
With that said, fixed-rate mortgages do bring a guarantee of stability. This can be particularly useful to first-time buyers as they will have minimal equity in their homes. It can therefore be well worth looking at taking out a fixed-rate mortgage as your first mortgage. Once you have built up more equity in your home, you can reassess when you come to remortgage.
For mortgage advice please get in touch
Comments