You might have thousands of thoughts running through your mind before getting a mortgage. As a first-time buyer, having anxiety is natural. Your savings are going to be invested for this purpose.
Moreover, you are planning to buy a home, which is going to be one of your biggest assets. Since you are applying for a mortgage to cover the remaining financial requirement, you must have a complete overview of it.
They are, after all, loans that should add up to the amount you save to fulfil the home price. Keeping the loan amount bearable should be your ultimate aim. This means you must save as much money as possible.
Otherwise, you might have to adjust to your dream. Therefore, you must start preparing your funds in advance so that you get enough time to gather the necessary amount. Then, you do not have to borrow money by going out of the way.
When your savings are noteworthy, you do not have to worry about getting a mortgage for bad credit as a first-time buyer as well. This is because you do not have to draw out a huge amount. Besides, a direct lender might have a lenient approach towards your requirements.
They would like to focus more on your affordability and not your credit scores. Thus, the likelihood of approval increases with them as compared to traditional lending. However, you must look at the various nuances of getting mortgages with the help of this blog.
The ultimate guide to obtaining mortgages for your home
Applying for mortgages is slightly different from applying for other loans. An asset is involved in this process. Therefore, some documents would be mandatory, and the process might stretch.
Income proof: The loan provider might validate your pay stubs. It should be a regular source of earnings.
Tax returns: Not just this year, but you might have to produce tax returns for several years. These will be used to establish your income.
Bank statements: The lender to make sure about the amount of money you have in your checking account. It will portray your savings so far and help them assess if you can repay on time or not.
Identification proof: You should have a Government-verified ID proof to show. It could be a driving license, passport, etc.
Renting history: Since you are going to buy a home for the first time, the lender might ask for past rent payment proof. This is applicable only when you have rented out a home to live.
Assets: The reason why the loan provider might enquire about your assets is to determine the amount of liquid cash you have. This could be the money you have invested as well. It will give a fair idea about your potential to pay back loans.
· The aspects that grab the attention of mortgage provider
The factors that the loan provider will verify in your application can influence the fate of your application. Depending on them, you can get a positive or negative decision from the lender. Thus, acknowledging these detriments is crucial before you start the application.
1. Type of property
The lender must understand if you are buying a brand-new home or a second-hand property. Maybe you are purchasing a property for investment purposes as well. All these should be known to the lender.
The property type can affect the loan cost and down payment. The rate of interest might vary in each of these cases. Furthermore, a second-hand home or investment property might need you to provide more as a down payment.
2. Debt-to-income ratio
This ratio establishes a comparison between your earnings and debt. With that, you can easily tell if you are earning enough to meet the ongoing debts. A high ratio would mean a big chunk of your income is utilised to downsize the level of debts.
This might be alarming for the loan provider. This is because you hardly get an opportunity to save enough for emergencies. With no or low savings, repaying loans within the given duration will be very tough.
The loan provider might feel reluctant to help with funds, seeing the least chance of getting loan payments on time. Based on this ground, they might deny to offer financial support.
3. Payment history
Instead of focusing on credit history, which also relies on this factor, the lender directly emphasises it. This is one of the most influential factors determining your credit scores. You should not be ignorant of it.
You can get an upper hand with a record of on-time payments for bills or other loans. This will help in building confidence in the lender who can trust you with a mortgage now.
4. Down payment or deposit
This is the amount you will pay outright from your end for the mortgage. Therefore, if you manage to collect a suitable and big down payment amount, you can get favourable rates easily. With smaller amounts, getting affordable rates becomes tough.
How much you should save for the deposit should also depend on the mortgage type you choose. On average, 3% to 20% of the mortgage is the ideal amount for a down payment. Check with your mortgage provider to understand the down payment amount.
· The process to follow for mortgage application
Once you know the aspects that can make or break this mortgage opportunity, you can head to the application part. Do not forget the basic eligibility conditions, which revolve around age, income, residency, and bank account.
In some cases, the loan provider might have additional requirements. For smooth approval, you must meet these criteria.
a. Assess your purchasing potential
Ahead of proceeding further, validate how much you can afford to pay for the mortgage. No matter how much you earn, you are responsible for disbursing a designated amount every month. Your salary should accommodate this payment, or else further debts will be created.
For this reason, it is critical for you to assess your affordability. The amount of mortgage you must get should be according to your purchasing potential. It should not depend on the home you fantasise about owning but cannot afford practically.
You must know that a portion of your household income is going to be occupied by mortgage payments. If it is beyond what you can pay for in reality, the payments will get stuck.
b. Look for pre-approval
With direct lenders, you have this scope to pre-qualify. This means you have to fill out a mock application, and based on it, the lender will personalise a loan deal. After receiving the offer, you must evaluate the price and other terms and conditions.
If everything is suitable and manageable for you, there should be no problem in going ahead with the offer. After you accept the offer, the mortgage provider will provide you with a loan agreement. Go through it to check if what has been said so far stands true according to the agreement.
Once you give your consent, the lender does not take much time to complete the last leg of the formalities. You can receive the mortgage amount in your bank account once the lender initiates the process of money transfer.
The bottom line
Getting approval for a mortgage as a first-time buyer might be time-consuming. However, direct lenders can make the process more seamless for borrowers like you. Move forward with the application if you have understood everything.
