The Ultimate Guide to Secure a Mortgage for Begineers

Introduction

Getting your first home is one of the biggest milestones you will achieve in your adult life. It’s a huge financial responsibility, but it is greatly rewarding. Homeownership comes with a great deal of benefits. This includes building equity, improving your credit score, and ensuring retirement security. 

However, it is not a simplistic process. There are a lot of steps that go into it. The most important for a majority of people is securing a mortgage. This long-term loan is the vital piece that will turn your dreams of homeownership into a reality. 

Defining a Mortgage

But what is a mortgage? Most of us have a vague understanding of what it actually is, but let’s go through a more detailed definition. 

A mortgage is a loan that is specifically designed for purchasing a home or other property. It involves making payments over a certain period of time. This includes the principal (the amount borrowed) and interest (the lender’s fee). The average mortgage tends to last 25 years but can range from 6 months to 40 years. 

A mortgage is secured against your home. This means that if you fail to make your monthly payments, you could lose your home. 

Assessing your Financial Steadiness for a Mortgage 

In order to qualify for a mortgage, lenders will judge you based on criteria. This is to determine your reliability and make sure that you are able to commit. 

Lenders take the following into consideration: 

• Credit score: Lenders will take this into consideration if you’re a reliable borrower. Aim for a score of 620 or higher for the best chance of success. 
• Income: Lenders want to see proof that you earn an income. This typically is 3-6 months of payslips. 
• Outgoings: This is how much you typically spend a month. This covers expenses such as bills, food, and travel. Additionally, they also want to see your borrowing history and see how much you owe on credit cards, store cards, loans, and car finance. 
• Deposit: In order to proceed with a mortgage, lenders expect you to pay a deposit. 
• Age: You must be over 18 and be able to prove to a lender that you will be able to repay the mortgage by the time you turn 75. 
• Loan-to-Value Ratio: This is the ratio of what you borrow as a mortgage against how much you pay as a deposit. You should aim for it to be as low as possible, as lenders view it as less risky. Thus they will accept your offer at a better rate. 
• Debt-to-Income Ratio (DTI): This measures your monthly debt payments against your income. Lenders opt for a DTI of 43% or lower. 

The pre-approval process 

But before your financial steadiness is assessed, you must get pre-approved. 

The pre-approval process for a mortgage involves the lender assessing your financial situation to determine how much money they’re willing to give and what the terms are going to be. Whilst this doesn’t guarantee a final approval, it’s a great step to take. It presents you to lenders and sellers as a serious candidate, financially prepared to buy a home. 

There are specific requirements that a lender asks for. This includes: 

• Personal and Financial Information: Documents such as proof of income, e.g., pay stubs, tax returns, bank statements, credit history, and information about your debts and assets. 
• Credit Check: Review a credit score and report to determine how reliable you are as a borrower. 
• Assessment of your Financial Health: This is where your DTI comes into question, to make sure that you can handle the monthly mortgage payments along with other debts. 

The final stage of this process is receiving a pre-approved letter. This will state the loan amount you qualified for, the type of mortgage, and any interest rates that’ll be included. 

Tips on how to ensure a successful application

Now that we have gone through the process and factors of getting a mortgage, let’s go over some tips and tricks that will guarantee a successful application. 

Your credit score matters!!!

It can’t be stressed enough how important your credit score is. It’s a reflection of how responsible you are financially, which is something lenders take into great consideration. So before applying for a mortgage, get a copy of your credit report. This is to know what the lender will see when assessing your application. You can get your credit report from Experian or Equifax. 

If your credit score isn’t looking great, there are plenty of simple things you can do to boost your score. Click the link here to read our article on how to improve your credit score. 

Keep a consistent job!!!

The majority of lenders want to see that you’ve been with an employer for a moderate period of time before they’ll give you a mortgage. A good length is 3-6 months. This is something a lot of people don’t actually know. So if you’re thinking of switching jobs while applying for a mortgage, secure the loan first. 

Reduce debt

The last thing any potential lender wants to see is your credit card debt or outstanding loans. So before you apply, make sure that you reduce the amount of debt you have. This shows prospects that you know how to manage money responsibly, and you will be able to make repayments. 

Keep a consistent application

Once you have started your application, don’t start tampering around with it and changing numbers. This could cause unnecessary delay to property purchase and raise questions to lenders about your overall reliability. 

Bonus Tip

Get help when needed. 

If you are struggling with the process, then it would be helpful to invest in a mortgage broker. They can research the market for you, help you find the best mortgage deal, and find out your eligibility and how much you can borrow.

Getting a mortgage quote may also be beneficial to let you compare variable-rate deals and fixed-rate mortgages over a variety of different terms. Each deal will come with different fees, so it’s important to compare to find one that works for you. 

Conclusion

Getting a mortgage is only difficult if you make it. By following our guide, you are guaranteed to have a smooth process and a successful application. 

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