If you are a young couple who plan to buy your first house in the near future, you are perhaps not sure of how the whole mortgage & finance system works. You might also not be sure whether you qualify for a mortgage. Let us provide some basic information.
A mortgage is nothing else but a loan that is issued by a bank or a similar financial institution. The difference between this and an ordinary loan is that a mortgage is a secured loan – the property which you buy is used as collateral. This has some implications for you: if you get in arrears with the monthly repayments and you can’t make a satisfactory arrangement with the bank, they will sell the house to a third party and evict you.
With the current economic downturn and the large number of properties being repossessed, you’re not likely to get a 100% loan as a first-time buyer. This means you’ll have to save up for a substantial deposit. How large the deposit has to be will depend on how much you earn, your assets and your credit record.
The bank will send out a trained appraiser to determine the value of the property you want to buy. If he should find that you are paying more for the property than what it’s worth, any bank will be very reluctant to finance you, unless you put down a substantial deposit. This is understandable: one can’t expect them to provide a loan for more than the value of the property.
It’s very frustrating and demoralizing to spend ages finding that special house, and then the bank turns down your mortgage application. Fortunately there is a way to prevent this form happening: you can apply for pre-approval. The bank will ask you for copies of your salary slips for the past couple of months and proof of other assets you have. They will also do a credit check on you. Based on this they will grant you provisional approval for a certain amount. You can then go out and start looking for a house to buy. Of course the value of this house still has to be at least equal to the amount of the loan you want to take up.
To be on the safe side, it’s always better to have a substantial savings account before thinking of buying a property. Many banks have special savings accounts paying decent rates of interests for people saving for a deposit on their first house. When you apply for a mortgage, being able to put down a decent deposit will certainly also raise your credit-worthiness in the eyes of the bank.
As is clear from the above information, the mortgage & finance industry is not all that involved. To make sure you get that sought after mortgage, make sure you handle your financial affairs responsibly for a couple of years. Live below your income and built up an investment account to be used for a deposit and other expenses.
How would you like to get more expert advice from Lisa Udy? Learn more by reviewing Lisa’s fantastic website at Smithfield UT Real Estate and Cache County UT Real Estate