If you’ve been thinking about a mortgage for a while, this article is for you
Home is a special place. Yet many of us prefer living in a rented apartment or staying with extended families. At the same time, we may dream of getting a house of our own one day. A mortgage is a perfect solution, but many people don’t dare to apply for such a long-term serious liability. Our article will help you to get a mortgage smoothly.
If you think getting a mortgage is hard, this data may encourage you:
- In 2016, 69.2 % of the EU population lived in owner-occupied dwellings, while only 19.9 % were tenants.
- Out of those, 26.6 % lived in an owner-occupied home for which there was an outstanding debt or mortgage.
- In the last quarter of 2018, the total amount of outstanding residential mortgage lending in the UK, which is the major European mortgage market, reached 1.59 trillion euros. The smallest recorded lending for property repayment was registered in Hungary, equal to 13.52 billion euros.
- According to the New York Federal Reserve report, the share of the mortgage market by FinTech mortgage lenders has increased from 2% ($34 billion) of the market in 2010 to 8% ($161 billion) in 2016. Simplification of mortgage procedures increased the number of lenders significantly.
- In 2017, only 21% of the US population who bought a home paid the whole sum at once for their purchase. The statistics are similar in 2018 – 78% of all property deals involved a mortgage.
- Despite rising house prices, the annual predicted number of new mortgages and the overall market situation will remain stable across the globe in 2019-2020. In most countries of the world, rent prices rise alongside housing values, so most people prefer investing in their own dwelling rather than renting from a property owner.
Draft a plan
As with every serious venture, getting a mortgage needs preparation. It can be divided into five main steps:
- Order your finances.
- Choose the right type of mortgage.
- Try out an Agreement in Principle.
- Prepare your documents.
- Apply for the mortgage.
If you want to receive a major loan, you have to look trustworthy and responsible. Your finances should prove you’ll be able to pay the debt back within a given term. These few tricks can help.
- Save some money. A deposit equal to at least 5% of the chosen house’s worth is a good sign of your intentions. It’s also a good precaution against future changes of financial circumstances.
- Don’t spend all your income. Your recent bank statements should show stable in and outgoing transactions. At the same time, some leftover money that remains regularly is a strong plus even if you don’t put it into a savings account.
- Pay off existing debts. Not only will the lenders be sure you are a responsible borrower, but also you’ll have less confusion about your liabilities.
- Have some smaller credits. Pay them timely. First-time borrowers are unpredictable. Build up your trust.
- Improve your credit score. You can find more information here.
Choose the mortgage carefully
There are many affordability calculators online. They are objective ways of estimating your payment capabilities. The simplest of them require just your income and monthly debt amounts. They can help you decide on a mortgage size you can safely afford.
Other mortgage calculator types use your house price to predict your future monthly expenses considering all taxes and interest. Additional fees may appear greater than you imagine.
Before opting for a house, you can also check the regional pricing policies.
Think about the repayment type:
- Repayment mortgage. You’ll make monthly payments that include a portion of the borrowed sum and the interest. Your debt will be cleared when the mortgage ends.
- Interest-only mortgage. You pay interest each month but the main sum remains as debt. You repay the loan itself at the end of the mortgage term. Mortgage providers usually need proof of an investment that can help you do this.
Consider the available interest rates.
- Fixed interest rate doesn’t change over time. It’s predictable and stable. However, you may miss out on decreasing tendencies that can take place over the long term.
- Variable interest rate changes every month. It can rise and fall according to bank tendencies and is kind of Russian roulette. Yet there’s also a capped variable rate that allows fluctuations only within the set limits.
Agreement in Principle
Agreement in Principle (AIP) is a trial version of your future application. You can get it from a mortgage provider or broker. Usually, it can be filled in online. There’s no need to visit the office one more time.
You’ll see what data is needed and check if you’re likely to be accepted for a mortgage. Moreover, unlike an actual mortgage application, it won’t affect your credit score.
An AIP is usually only valid for 30 to 90 days. Don’t use it too early, your financial situation may change significantly. However, if it appears successful, don’t waste time. You have high chances of being accepted for the real mortgage as well.
Now it’s time to collect all the documents you may need for your application. You’d better have hard copies, a digital proof is not always accepted. If you’re not sure, consult with the loan providers beforehand.
Some papers you’ll need:
- ID. Your passport and driving license. You may need to make copies as well.
- Payment records. Paychecks, receipts, bank statements and household bills for the last three to six months. The more the better. Perhaps, you’ll not use all of them, but collect them just in case. Contact your bank if a digital printout doesn’t apply.
- Job statement from your employer. The form should include your income information.
- Income and tax statements. Business accounts and tax records for the past two to three years if you’re self-employed. A tax return form if you’re self-employed or you get income from multiple sources.
- Contacts. The address of the desired property. Contact details for the estate agent and your solicitor.
- Additional details. Consider your unique situation. For instance, you may need a gift letter if you’re getting help with your deposit from your parents or other persons. This letter should say that money is a gift, not a loan.
Finally, you can fill in the required forms. Be accurate, double-check all the personal details and numbers you give. Don’t rush.
Once you submit the application, it can take around 18-40 days for the mortgage provider to make a decision.
If you’re accepted, the provider will give you a binding offer and a mortgage illustration that explains the terms of your mortgage. You’ll have at least seven days to consider and compare the offer before accepting it.