Owning a home is a dream for many people. We rent for years saving up enough money to put down as a deposit so we can finally own something we can call home. In many European countries, it’s quite normal to rent for much longer periods, but in countries such as England and the USA, the desire is geared more towards owning a home.
The cost of a home has dramatically increased in the last 20 years and it now requires a much larger deposit. There aren’t many people that can afford to drop £250,000 on a house so a loan is often required. These loans are called mortgages and are often the largest loan we ever take out. What do you need to know about a mortgage? What is good for you? Here we take a look at some things you should know.
What Is A Mortgage?
Simply put, a mortgage is a loan from a bank or building society that allows you to buy any kind of property. As it’s quite large, you will pay this back over a prearranged time period, usually around 25 years, plus interest. There are also options to take them over shorter or longer periods.
The mortgage you take is secured against the property you have chosen to buy. It stays this way until you have paid it off completely. This does mean, however, that the lender can repossess your home if you fail to make payments so it’s best to be realistic with how much you can borrow.
How Much Do You Need For A Deposit?
As said previously, you can’t buy a house completely on a loan, you’ll need to show you have an interest and are serious by putting down a deposit consisting of your own saved money. According to this site run by expert mortgage advisers, it’s best to put down a large deposit as it will make your monthly payments much cheaper. Deposits are shown as a percentage of the overall value of the property. For example, if you were to look at buying a house for £300,000 then a 10% deposit would be £30,000. The rest will be provided by a mortgage provider which you will pay back over an agreed time period.
Is It Your First Time Buying?
It’s notoriously difficult to get onto the property ladder, especially with the amount of money you need to put down for a deposit getting higher and the price of property increasing every year. If it is your first time buying a house then don’t panic too much, there are options for you to make it a little bit easier.
First-time buyer mortgages allow you to buy a home even if you can only afford a small deposit. The only problem being is your LTV (loan-to-value) would be much higher, making your monthly payments larger.
There is a scheme called Help to Buy and these will improve your chances of buying your first home if you don’t have a large deposit with financial aid from the government. It works by utilizing an equity loan. If you can save 5% of the properties value then you could be in with the chance of receiving a 20% loan meaning your LTV would be left at 75%, a much more affordable monthly payment.
Right to Buy is another scheme that allows you to buy the council house you’re living in at a discounted rate. You can use the discount as part of your deposit.
Finally, you can receive a guarantor mortgage which will allow you to buy a property with a small deposit as long as a friend or relative is willing to be named on your mortgage to make any payments you miss.
Strange Circumstances? Still Want To Buy?
There are many situations where you will want to buy a home but the odds are up against you. Maybe your work situation is difficult or you’re paying a lot in rent and are struggling to save up a deposit. There are mortgages for everyone but you need to make sure you’re going to be able to make payment before signing up.
There are mortgages for people with bad credit that will allow you to purchase a property even if you’ve had financial difficulty in the past. And if it’s not bad finance, but you struggle to prove a consistent income due to being self-employed then there are also mortgages for that.
Getting a mortgage without a deposit at all is pretty difficult and the only way you can do so is if you have a guarantor on your mortgage willing to make any payments you’ve missed.
Finally, if you’re in the lucky situation where you can afford to purchase another property for a business or as an investment then there are options for you as well. Commercial mortgages cover everything from buy-to-let to buying commercial property.
Buying a home isn’t an easy process but it’s one that’s worth it in the long run. Save up as much money as you can and you’ll be able to see all the options you have in front of you. Be sensible if it’s your first time. You don’t want to be out of your depth one month into owning your first home.
