One of the best things you can do before putting in an offer on a new home is sorting out your finances.
It can be a painful experience jumping through all the hoops, only to get a negative response from your mortgage company. Nobody wants to be disappointed.
So, make sure you follow these tips and get your finances in order before proceeding with a home loan application.
Work out your income
The first step is to work out your income and see if there are ways to cut back on your spending for a few months.
You will need to prove to the lender that you are capable of paying a mortgage each month, without it impacting too much on your life.
Cut your spending
It’s important to cut back on your spending before applying for a mortgage.
You will need to prove you are sensible with money, so avoid any big nights out or luxury holidays that might not tie in with your income. If you spend a lot of money on useless things every month, you will be surprised what a difference it makes to your savings.
Throw it all in together, and you can give your deposit a mighty boost – more on that later.
Collate your savings
Although you can get 100 percent mortgages, it’s advisable to get a deposit together, however small.
It can make a dramatic difference to your monthly payments, and it will help you get a more expensive property.
So, pull together all the savings you can afford, and start to work out how much you will need. Don’t forget; you will also need extra cash for legal fees, property inspections, and taxes.
It might be worth approaching a financial advisor, who will be able to find you the best deals available on the market.
Find a property
By now you should have a rough idea of how much you can spend on property. The amount will be based on your ‘loan to value ratio’, which lenders use to determine how much you can borrow.
It’s this figure that makes a big deposit significant, as the less you borrow, the less risk there is to the lender. That means you will get a better interest rate when you apply – and it can make a big difference for your monthly payments.
So, your deposit will give you a good indication of how much you will be able to afford. You can then start to look at apartments and homes to choose something in your price range.
Find the right mortgage
There are various mortgage products out there. However, some will be an option for you while others won’t. A typical mortgage lasts for 25 years and includes interest payments of a certain amount each year.
However, you can also get interest only mortgages. These involve only paying the interest payments rather than laying down some money on the actual property.
Which is best for you? Well, you may not have much choice.
It’s vital to apply for a mortgage you can afford. If possible, get a preapproval amount – while it won’t guarantee you the mortgage, it will give you a rough idea of how much you can spend.
Good luck – and let us know how you get on!