Getting your first mortgage is one of life’s major milestones, and it can be an exciting but daunting prospect. The headlines often seem to be full of doom-laden news about spiralling house prices and rising interest rates. You may have assumed that a mortgage is beyond your means because of your credit record or level of savings.
However, in many cases, there is much more flexibility in the system than you might think. Here are some common mortgage myths, and why they are wrong.
You need a 20% deposit to get a mortgage
It is true that the average home buyer puts down a 15-20% deposit, but it is possible to put down as little as a 5% deposit. This means that you can borrow up to 95% of the home’s value. However, the bigger your deposit, the lower your monthly repayments, and probably your interest rate, is likely to be.
You could also look into 100% mortgage schemes, which allow you to borrow the entire amount for the home if you have a family member or friend who is willing to act as a guarantor. Some areas also offer Shared Ownership schemes, which allow you to pay part rent, part mortgage, meaning that the amount of deposit you need will be lower.
You need a very good credit rating
It is not impossible to get a mortgage even if your credit rating is less than perfect. All lenders have different assessment criteria, and the credit rating is just one element of the whole picture. They will also assess your income and outgoings, and the overall level of capital and debt that you have.
A bad credit score can always be improved on, if you make an effort to pay all your bills on time and meet all loan repayments. Avoid taking on any new expenses, such as upgrading your car or booking an expensive holiday six months before applying for a mortgage.
It is difficult to get a mortgage if you are self-employed
Lenders are more flexible about employment arrangements than many people assume. As long as you can provide solid evidence of a stable income that is sufficient to meet the mortgage repayments, then there is a good chance your mortgage will be approved.
Self-employed people and freelancers will need to send in a tax return, and usually two years evidence of a consistent income source.
A mortgage is more expensive than renting
Rental fees have been rising steadily over the past few years, and in many cases, you will find that the monthly repayments are actually lower than the local rental values of the area. A mortgage also means that you are building equity, which you are unable to do if you remain in a rented property.
All mortgage deals are the same
All lenders assess mortgage applications differently, which is why it is important to shop around. They can vary in the amount of interest that is paid, whether the interest rate is fixed or tracked to the Bank of England rises, and how long the mortgage term will be.
For information about Tulip Mortgage Services, please get in touch today.