Tips for Getting Your First Mortgage

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Tips for Getting Your First Mortgage

Post  sleepyme123 on Sat Nov 17, 2012 10:21 am

Getting a mortgage is not easy in the current climate of expensive prices and uncertainties surround the housing market and mortgage industry. These are some suggestions for getting your first mortgage.

1. Don’t worry about Short Term Volatility
One current problem with the housing market is its volatility and uncertainty. When buying a house thing about the long term. The fact house prices may fall 5% in the next 12 months, is not necessarily a reason to avoid buying. House price predictions can be wrong, but, the main thing is if you are buying a house to live in, you don’t have to think like a speculator – buying a house is not like buying a share on the stock market. Volatility has been a persistent factor in the UK housing market.

2. There is no Harm in Waiting
Having said the above, think it is also worth stating that saving a deposit for a few years, will definitely help get a better mortgage. With house prices stagnating or possibly falling, waiting for a couple of years may help average incomes catch up with house prices. Also during this time, you can save for a deposit and/or pay off old debts. If you really want to save money quickly consider living with relatives who might offer a subsidised rent.

3. Work out a Reasonable budget.
Because house prices are so expensive, it is difficult for first time buyers to create realistic expectations; there is a temptation to stretch our budget to be able to afford a desirable area. Setting a realistic budget is important to get the right balance between buying a house we are happy to live in, and having a mortgage which doesn’t overwhelm us. The most important thing is not to exceed our affordability.

4. There is no shame in downsizing
To get a reasonable mortgage, there is no harm in looking for smaller properties or houses in less expensive areas. There is no point in getting a huge mortgage if we then have to spend all our waking hours saving money to pay off our mortgage. In the future you will have the opportunity to trade up.

5. Reduce other loans
Many mortgage companies increasingly look at issues of affordability in deciding whether to grant a mortgage. Afford ability involves examining our income, but also looking at existing loans and current outgoing payments. If we can reduce our expenses and remove debts we will be in a better position to gain a mortgage and also meet our mortgage payments. To reduce other loans may need careful planning and the willingness to reduce unnecessary expenditure.

6. Consider Extending Mortgage Period
People of the older generation, inevitably dislike the idea of getting a longer mortgage term. In a sense they are correct, getting a longer mortgage will definitely increase the total cost. If you can pay off your mortgage quicker you will reduce the total cost of buying a house quite significantly. However, a 40 year or 50 year mortgage will reduce your monthly payments and make a mortgage less overbearing. If you can pay off your mortgage in 10 or 20 years, then definitely do it. But, if you are an average first time buyer, this is often unrealistic given the high price of houses. If you have a choice between a 50 year mortgage and renting for the rest of your life, then you are likely to be better off buying and taking out a longer mortgage term.

7. Joint Mortgages
Joint and shared mortgage schemes are becoming increasingly popular, offering a way for people to get on the property ladder by buying with other people. see: Joint mortgages

8. Understand the different types of Mortgages
If you are new to the mortgage market, you may feel a little bewildered by the range of mortgages on offer. Different mortgages may appeal to different people. It helps to take independent financial advice; but, the advice will be easier to understand if you can familiarize yourself with the different types of mortgages on offer. First time buyers should know the benefits of:

• Fixed Rate mortgages – giving certainty in future mortgage payments,
• current account mortgages beneficial to those who have reasonable savings in your current account.
• Repayment vs Interest only. Interest only means your mortgage payments do nothing to reduce capital sum. This is not sustainable unless you can find an alternative way to repay the debt.
• Different types of Mortgages

9. Plan your budget
If your mortgage payments are going to be higher than your current outgoings. You will need to place greater importance on budgeting and controlling spending. Avoid the temptations of spending money unnecessarily, focus instead on making sure you don’t get into difficulties making your repayments.

10. Don’t forget a Mortgage isn’t the only Point of Life
There is a certain pressure to get on the property ladder. But, it might just be that in our current circumstances it is not possible. For many renting, can offer an equally good alternative. It would be a mistake to focus only on earning more money to be able to get a large mortgage. This limits other aspects of our life.

11. Bank of Your Parents
Because banks are requiring big deposits, the only realistic way for many first time buyers to get on property ladder is with some help from parents. This can be difficult depending on your relationship with your parents, but it can save many years and is worth pursuing. Another option is for your parents to act as guarantors – so they own it, and you can rent it / buy back in your own time.

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