How to Apply for Your First Mortgage

Buying a home for the first time can be a very thrilling experience. However, the process of applying for your first mortgage is anything but thrilling. A simple mistake and your application can get rejected by lenders or you end up with a property that is unsuitable for your circumstances.

That is why it is important to get the right guidance to help you navigate through the daunting task of mortgage application successfully.

Here are some important tips for first time mortgage applicants to help you manage the process with success and buy the home of your dreams.

1. Save a deposit

A deposit is the money that a buyer contributes towards the purchase of a home. The lender contributes the remaining amount. The deposit is usually expressed as a percentage of the total cost of buying the home. For instance, if a home is going for £500,000, a 10% deposit requirement means that the buyer contributes £50,000 while the lender contributes £450,000 or 90% of the property’s value.

The ratio of the loan to the value of the property is called loan-to-value (LTV). The higher the LTV the more upfront fee and interest rate the buyer pays the lender. Thus, it is advisable to make your deposit as large as possible.

2. Check out mortgage schemes

There are several schemes that can help you buy your first home. Here is a look at some of these schemes and the conditions you need to meet to take advantage of them.

Help to Buy

Help to Buy is tailored for buyers who cannot raise big deposits. Under this scheme you can get an interest-free loan of 20% of the property’s purchasing price, as long as you are able to raise a minimum of 5% deposit.

If you are buying the property in London, the interest-free loan is 40% the property’s buying cost. The loan is interest-free only for the first five years. The other condition of this scheme is that the value of the property should be less than £600,000.

Right to Buy

Right to Buy applies to tenants renting their home from local councils. The scheme allows such tenants to buy the homes at a discount. The exact discount amount depends on the location as well as the type of the home, but it can be as much as 70% of the home’s buying price.

For tenants to qualify for this scheme they are required to have rented the property that they intend to buy for more than three years. The three years do not need to be consecutive. There are some lenders that use discounts a buyer gets through Right to Buy scheme as deposit for mortgage.

Shared Ownership

This scheme allows tenants to buy shares of the home they live in from their landlord. The landlord is usually a housing association or a local council. The tenant buys a share of the home, often 25% to 75% of the home’s value, using mortgage and then continues paying rent, albeit a reduced one, for the share that they do not own.

The tenant can later on increase their share of ownership to 100%. To be eligible for the scheme one should have a household income of less than £90,000 if they are living in London or less than £80,000 if they are living outside of London.

Guarantor Mortgages

These mortgages are very useful if you have no deposit or have small deposit. Under this scheme, a lender can offer you an LTV ranging from 95%-100%. The only condition is that a guarantor (friend or family member) agrees to cover your repayments any time you miss them.

3. Choose an affordable property

Ashford estate agents Evolution Properties says that most mortgage applications get rejected because buyers choose the wrong properties. It is not just a matter of choosing a property that is appealing, it should be correctly valued and affordable.

Correct valuation of property is important because lenders want to make sure that the property you are offering them as security is worth the amount of loan that they are giving you. So, if they feel that the property is overpriced, they will reject the application.

Secondly, it is worth noting that the monthly payments on mortgage that you make are just a fraction of your property’s expenses. You also have to consider repair and maintenance costs as well as property taxes.

Thus, when looking at whether a property is affordable or not, you should not just limit yourself to monthly payments on mortgage.

4. Use a mortgage broker

As a first-time buyer, you may have difficulties finding the best deal out of all the available deals. You also may not know how to make an application that lenders will easily accept.

That why it is advisable to consider using mortgage outsourcing services to help you get the best mortgage deal that fits your circumstances and also make an application that is guaranteed to be accepted by lenders.

The mortgage application process is often tedious. The possibility of rejection only makes the process scary. This is particularly the case for first time applicants.

However, with information like the above, it is easier to make an application with a high chance of success.