by Mark Johnston
It is worth first time buyers noting that at the present time 100% mortgages are virtually a thing of the past and besides starting off with no equity in the property leaves buyers in a very vulnerable financial position.
There are some fairly obvious benefits to having a sizeable deposit when starting the house buying process. The most obvious one is that it will make it much easier to get a good affordable deal.
Another advantage is that the would be buyer will immediately have equity in their property. The bigger the deposit paid, the more protection a person has in the event of their property dropping in value.
The step to saving a deposit is to start budgeting. Potential first time buyers especially should evaluate all their expenditure and determine what is necessary and what could possibly be cut back on or even eliminated altogether. This is all well and good but the real key issue is once a potential buyer sets themselves a budget they should try to stick to it!
Once a potential buyer has managed to save some sort of a deposit the next step is the mortgage process.
There are two aspects to selecting a mortgage, choosing between the types of mortgages and choosing between different lenders. While the former is important in terms of product suitability, the later is equally important in terms of effective competition.
Once a potential buyer has done their research in to all the mortgages and lenders available to them, they should then compare them. If a buyer has quotes from different lenders they should compare them on a like for like basis, looking at payment charges and flexibility to name a couple.
They should also then ask lenders about the term of the mortgage. Most mortgages are 25 years in length, but borrowers can choose a longer or shorter period if they wish, depending on what they can afford and how quickly the want to be debt free.
The amount a mortgage lender is willing to lend will depend on a combination of factors such as:
– you and/or your partners salary/income
– the equity in your existing property (if you have one)
– the size of your deposit
– any outstanding debts or committed outgoings
Whilst every mortgage is different, usually the lender will use two ratios to determine how much a borrower can afford:
– their monthly payments should not cost more than 28% of their income before taxes
– the total debt that they pay each month should not be more than 36% of their income before taxes
Due to the credit crunch it is now more vital than ever before that potential buyers secure a mortgage with a lender or get a an ‘offer in principle’ before starting the property searching process.
It should take around three weeks from the mortgage application stage to a formal offer being made by a lender. However as all lenders and borrowers are individual this timescale may vary slightly.
All buyers should remember that buying a house, especially a first home, is an exciting prospect and this should not be soured with the mortgage process.
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