Deciding to own a home is a big decision for any person or family. It’s not necessarily a burden, rather a major responsibility that should involve careful planning. In the end, owning a home is the dream of many families. Renting doesn’t give the kind of stability that a mortgaged home does. For anyone who has looked into the housing market and checked for mortgage offerings may feel slightly overwhelmed by the sheer amount of information, you need to process before making a decision.
The general rule of thumb before applying for a mortgage is your financial readiness. This has a wide scope as it doesn’t only mean that having a stable job seals the deal. Every detail related to your finances will be carefully looked at in detail. With stricter measures being imposed for approving loans, even the smallest red flags can impact the loan amount and interest rate.
The Required Paperwork
Before the financial crisis in the housing market hit, lenders were a lot less stringent about the approval process. Borrowers used to be able to get approved for a loan by simply having their salaries multiplied by a certain value. This practice is long gone now and lenders adapted affordability calculations as the new norm. Your salary minus your monthly outgoings will determine how much the likely mortgage you’ll be approved for is. Your credit score is also going to be enquired into by the lender. Although there are people who get approved for bad credit mortgage, as a first-time borrower, you should always aim for a better deal and good credit will help you with that.
If you’re a first time buyer mortgage brokers will ask detailed questions on how much you spend on daily expenses for your family. You will be asked about utility payments and other loans. Not only that, you’ll be asked to provide proof of every expenditure you declared. Before speaking to a broker, you should come prepared with the necessary paperwork. Some of these include the following:
- Utility bills
- Credit card/ car loan bills
- Recent payslips
- A copy of your bank statement
- Proof of identity such as ID cards
- Proof of your employment
- For self-employed individuals, you need to bring a tax return
These are some but not all of the paperwork you need to bring. You can always ask your broker if there’s anything else required from you.
Preparing for the deposit is another major consideration for any first-time homeowner. Some even start saving up for a deposit years before deciding to apply for a mortgage. In general, the bigger the deposit, the better deal you will get. Remember that lenders will give better interest rates if the borrower can put a deposit of at least 25%. Of course, it will be a lot better if you can put in a bigger amount.
Other costs not figured into the value of the home are maintenance expenses and home insurance. The lender will often offer in-house insurance before closing the deal. You should think about getting insurance elsewhere because some lenders may charge you more for the insurance that you need to pay. Shop around for cheaper home insurance and look for a better provider.
Getting the Right Mortgage
There are many online tools available to give you a comparison of rates and deals offered by different lenders. You can use these or you can talk to a broker directly. Look for a broker that is not affiliated with a specific lender. Someone who can give you advice regarding the whole housing market is ideal. Of course, you can also research online and subscribe to publications that specifically release the latest news and mortgage guides.
Again, preparation is key. Your financial readiness is something that only you can control. The years leading up to your decision to apply for a mortgage should be dedicated in building your credit as well as your finances.