Purchasing a new home for the first time? Well, one word is indeed a reality now i.e. NERVOUSNESS… Your one wrong decision can ruin you outright. If you are lucky enough to have money set aside to buy a new property, it will be a delightful experience. However, most of the borrowers struggle to have enough money if they are locating from a rental house to their own.
Getting approval for a mortgage for first time home buyers is quite daunting. While short-term loans are easy to take out despite bad credit history, the lender may deny approving a home loan until and unless you show more financial commitments. It’s important to conduct detailed research online before committing to anything. Resourceful websites like LowerMyBills can help you avoid any beginner mistakes regarding finances.
Here are some tips that can help you have a mortgage approved:
Begin to save for a deposit
A lender may approve your mortgage as long as you have a minimum deposit size. Most of the lenders will ask you to have 5% of your home value as a down payment. The bigger the deposit size, the lower the loan-to-value, and the lower the interest you will pay. You should start saving money for your mortgage since the moment it flashes across your mind. Ideally, you can get the best deal if your deposit size is at least 20%.
If you do not have a larger deposit, you can apply for a government first-home loan scheme. According to the recent data, The Coalition has come up to help 10,000 first home buyers with 5% deposit size to get the mortgage with government equity of 15%, reducing the loan-to-value to 80%.
However, financial experts warn that the market adds up the value of homes, securing the guarantee for 15%. Further, there is no guarantee that it will last for several years.
Determine your affordability
Mortgages do not act like short-term loans. If you fail to repay the debt, you will lose your home. Therefore, it is crucial that you know your repayment capacity before you apply for a mortgage. Once you have arranged the deposit size, you should use the first-time buyer mortgage calculator to know the total cost. It will give you an estimation of how much you will be able to afford.
Evaluate your credit score
A mortgage lender will always peruse your credit report to assess your creditworthiness. The higher the score, the higher the chances of approval. A stellar credit score will make your application attractive to the lender and as a result, you will get the deal at a lower interest rate. Having a poor history of making repayments does not discourage you from applying for the loan as some lenders provide mortgages for bad credit people, but you will end up paying high-interest rates. Get your credit report from credit bureaus to know your score. If it is not perfect, try to settle all your credit card bills, debt installments and start to pay utility expenses on time.
Compare mortgage rates
Property sales have been at the lowest possible level for the last two decades, which has induced mortgage lenders to cut back on interest rates. A two-year fixed rate for 95% loan-to-value was cut back by 0.1% to 2.99% whereas the same reduction was noticed in a five-year fixed rate for 90% loan-to-value, making it easier for first-time buyers. Compare deals offered by different mortgage lenders and choose the best one.
Stick to your budget
Before you take the plunge, you must know the value of your house that you are going to buy. Try to create a budget after knowing the estimation of the total cost of a mortgage. Make sure that you stick to your budget when you clinch a deal to avoid a repayment you cannot afford.
If you want to get on the property ladder, you should focus on building your credit, set aside money to have a larger deposit, and choose the right type of mortgage.