By far the biggest financial commitment of most people’s lives is when they decide to take out a mortgage on their first home to buy and obviously, it’s completely normal for first-time buyers to be unsure about how and where to start.
To ensure that you get the best deal possible for your first mortgage agreement, you should also be sure to seek pre-approval from a reputable and renowned lender. To aid you in your journey, continue reading to discover a beginner’s guide to applying for a mortgage.
Build Your Credit Score
A healthy credit score is one of the most important tools for anyone looking to take out a mortgage, especially if it’s their first, and this is why you should download a copy of your credit score.
Luckily, if your credit score isn’t in as great shape as you thought, there a number of ways to help improve it, including trying to reduce your debts as much as possible and reducing any overdrafts you’re currently using.
Choose Your Lender Wisely
Taking out a mortgage from a private money lender would suit the vast majority of people who are looking for a first-time mortgage, but it’s absolutely critical to ensure that you’re aware of the reputable nature of any potential lender.
The most popular types of mortgages are set out below, all of which have different advantages depending on your personal circumstances:
- Variable rate mortgage
- Fixed rate mortgage
- Discounted variable rate mortgage
Variable rate mortgages basically result in a slight, or more noticeable, difference between what you’re likely to pay with your repayment schedule from month to month, whereas a fixed-rate mortgage is a mortgage where the interest rate will remain exactly the same from month to month.
Finally, discounted variable rate mortgages come directly from the lender and are based around their standard variable rate.
The Key Components of a Mortgage
A mortgage payment isn’t just one simple amount of money used for one thing every month, and although you’ll see it leaving your bank account in a lump sum, there are several things included in your monthly mortgage payment.
Firstly, the largest amount of money, the “big number”, is the amount that you owe to your mortgage lender, which will steadily reduce over time as you continue to make your monthly repayments to the lender. Next, there’ll be a certain amount of interest attached to the mortgage, which could either be fixed (a set amount) or variable (adjustable month to month).
In addition, you’ll also be contributing to your homeowner insurance, any and all property taxes, and also insurance on the mortgage itself.
The Importance of Pre-Approval
Finally, before you start house-hunting for your first property, it makes logical sense to apply for mortgage pre-approval, to ensure that you’re firstly qualifying for a mortgage and also to give you an idea of what you can afford.
Mortgage pre-approval requires more than one proof of income, a good credit rating, and proof of any and all assets that you have.