It’s not uncommon for those getting in touch with our Yeovil mortgage advisors to not fully understand the ins and outs of the process. They know they need one to buy a house, but, past that, the process feels overly esoteric to many. While at The Levels Financial we are always happy to walk our clients through the mortgage process from start to finish, we thought it best to put together an article to help you understand it all a little better. Let’s start with explaining what a mortgage actually is.
- What Is A Mortgage?
- How Does A Mortgage Work?
- What Is Loan To Value?
- How You Apply For A Mortgage: Step By Step
- What Is A Mortgage Term?
- How Can I Increase My Chances Of Getting A Mortgage?
- Yeovil Mortgage Advice The Levels Financial
What Is A Mortgage?
A mortgage is a loan taken out with a bank or a building society that allows you to purchase a property. It is a secured loan, which means that the borrower pledges an asset as collateral in exchange for the loan. For a mortgage, this asset will be the house you purchase, and this affords the lender the right to reclaim and sell the property if you are unable to make the agreed loan payments.
How Does A Mortgage Work?
When you take out a mortgage to purchase a home, you will most likely be required to pay a deposit towards the property’s purchase price. How large a deposit you will need will vary depending on your lender and the mortgage product you have chosen, but it will typically be 5-15% of the purchase price. The mortgage loan that you’ve taken out with the bank or building society can then be used to pay the remaining cost. You will also be required to pay stamp duty on your new property. How much this will be can easily be worked out using the stamp duty calculator on our website.
Once you’ve received your mortgage and made the purchase, you will own the home.
However, it’s critical that you understand that, because this is a secured loan, you must keep making payments on your loan in order to keep ownership of the property. These regular mortgage payments will typically be monthly, and will include an interest payment that your lender charges for allowing customers to borrow money. Again, exactly how much interest you pay will vary between lenders, mortgage products, and your financial background. This interest is how the lender profits from loaning money.
What Is Loan To Value?
Exactly how much of the purchase price is covered by the deposit and how much is covered by the mortgage loan is what is called Loan to Value i.e. the percentage value of the property that is covered by the loan. This is a key factor in determining what interest rates your lender will charge. Typically, the lower your loan to value, the lower your interest rate will be on your mortgage repayments.
How You Apply For A Mortgage: Step By Step
If you’ve purchased property before, this may be something you understand already. But to first time buyers, the process can seem very daunting. In broad strokes, these are the steps that most clients who use our Yeovil mortgage advisor services will need to go through to secure a mortgage on a new home:
1. Know Your Budget
Before any mortgage applications can happen, you need to know what you can afford to pay back. This is essential, because, as we mentioned before, your lender will repossess your home if you are unable to meet repayments.
There are many mortgage calculators available online that can help you work this out, but if you are truly confused, it’s best to call our mortgage advisors in Yeovil for guidance.
2. Save For A Deposit
For many people, this is where they will struggle the most. In most cases, the more you are able to put down as a deposit, the lower your interest rate will be, so it is always worth taking this step seriously.
If you are struggling to save up a sizable amount for a deposit, there are many mortgages that require a smaller deposit than a standard loan, such as a first time buyer mortgage and shared ownership. Of course, these products will come with their own unique caveats, so it’s always worth discussing with our advisors first to determine what’s right for you.
3. Acquire A Decision In Principle
A mortgage decision in principle, also known as an agreement in principle, is an agreement you reach with a lender to determine how much you might be able to borrow. This is not confirmation of a loan, but it’s an important first step in getting one.
Getting a decision in principle only requires a soft credit check, and so will not have an impact on your credit score, which lenders will use to determine your suitability for a loan when you’re making the official application.
4. Find Your New Home
With a good indication of how much you will be able to borrow in hand, you can begin looking for a property that suits your financial situation and make an offer.
If you haven’t done so already, now would be a good time to contact our mortgage advisors in Yeovil for detailed advice on what you can afford and what mortgage products may be available to you.
5. Apply For A Mortgage
Now that you’ve had a home offer accepted, it’s time to apply for a mortgage with a lender. You will need to consider what type of mortgage is right for you, as there are large differences between, e.g. tracker and discount variable rate mortgages (for more information on this, consult our article “Fixed mortgages vs. Discount variable rate mortgages”). Fortunately, our Yeovil mortgage advisors will discuss all these with you to reach the right outcome.
At this stage, the lender will perform a hard credit check to gain insight into your financial background to determine how suitable you are for a loan.
6. Receive A Home Valuation
As we explained, the house you are purchasing is collateral against your loan. As such, the lender will need to conduct an independent appraisal of the home’s value to make sure it is worth what you are paying. This will ensure they are able to recoup losses on the loan if you are unable to keep up with mortgage repayments.
7. Get A Mortgage Offer From Your Lender
If everything has gone well up until this point, then your lender will offer you a mortgage loan. This is where you’ll see exactly what they’re willing to pay and what the repayment terms will be. Of course, it is best to read this carefully so that you are 100% certain you’ll be able to pay it back.
8. Close The Housing Deal
At long last, you’ll be able to purchase your chosen home with your housing deposit and your mortgage loan. This is when you’ll receive a completion date for your deal, and you can finally start prepping to move into your new home.
What Is A Mortgage Term?
Now that you’ve gotten your mortgage and moved into your new home, you can start working towards paying off the loan. When you receive your mortgage offer, you will be informed of your mortgage term, which is the length of time that you have to pay back your mortgage. The average mortgage term is 25 years, however there are 15 year terms as well as up to 40 year terms. If you keep meeting your monthly payments, then you will pay off your loan in full by the end of the term.
It’s also worth keeping in mind that you may be able to change the terms of your mortgage deal down the line if your financial situation changes e.g. you start earning more money and would like to pay off the loan sooner, but your current mortgage deal does not allow overpayments. Renegotiating in this way is called remortgaging.
How Can I Increase My Chances Of Getting A Mortgage?
The factor that determines whether or not a lender will extend an offer of a mortgage is if they consider you to be a reliable borrower. Given this, there are several things that you can do to improve your appearance as a borrower. According to our Yeovil mortgage advisors, the top things you can do are:
- Improve Your Credit Score: Your credit score is a picture of your financial history and circumstances. A poor credit score is a pretty clear indication that you may struggle to pay back a loan, but the opposite is also true for a good credit score. Fortunately, our Yeovil mortgage advisors have already prepared an article on 5 ways to boost your credit score to help.
- Choose The Right Mortgage Product: If you are struggling to gather enough money for a sizable deposit, then it’s a good idea to consider certain schemes that are designed to help first time buyers acquire a mortgage. Our mortgage advisors will discuss these with you during the process to find the right solution if you are having difficulty.
- Understand What You Can Afford: It can be difficult to accept that you will not be able to afford your dream home right away, but it’s important to clearly understand what size loan you will actually be able to afford.
- Use A Guarantor: This is where another person, typically a parent or guardian, will agree to make mortgage repayments on your behalf if you are unable to make the payments yourself. This can be a good reassurance to lenders, but also imposes financial risk on the guarantor themselves. It’s important to discuss this carefully with all parties involved, as well as our advisors, if this is something you are considering.
The Levels Financial: Yeovil Mortgage Advice
If you’re thinking about applying for a mortgage, then the best thing you can do to improve your understanding is to contact one of our friendly advisors for a free, no obligation consultation. We’ll walk you through everything involved in the process and work closely with you to find the right solution for your financial situation.
If you have any questions about mortgages or our mortgage products, then don’t hesitate to contact us on 01458 772 040 or by email at admin@thelevelsfinancial.co.uk. We’d be delighted to help you on your journey to buying a home you’ll love.
Because we always have your best interests at heart, you need to know that your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.
