So you have decided to get a mortgage - which is probably the biggest financial commitment you will ever make. Here is some basic information on mortgages so that you can make the right choices.
First of all, you need to work out how much can you borrow.
Normally, if you are buying on your own, a mortgage provider will lend you around four times your gross salary. So, for example, someone on 25,000pa could borrow up to 100,000.
There are some lenders that will offer you more but they will charge you a higher interest.
If you are buying with a partner or friend, then you can expect the lender to add their gross salary to the amount that you can borrow. So, using he figures in the example above, with a partner's salary of say, 23,000, together you could borrow around 123,000.
Some lenders calculate how much they are prepared to allow you to borrow by lending you three times your joint income. Using the figures in the example above, this would mean that you could get a slightly bigger mortgage - 144,000.
Any additional income (such as bonuses or commissions) may also be taken in to consideration as well.
Lenders will also look at the actual affordability of your monthly repayments. If you have lots of other outgoings, such as credit cards and loans, you may not be able to borrow as much. Conversely, if you have no other debt and the lender can see that you manage your finances carefully, you may be able to borrow more.
Deposits
Once you have found out how much you can borrow, you need to consider the deposit you will need.
Most lenders will allow you to borrow up to 95% of the value of the property. So you will need to have 5% of the value to put down as a deposit, as well as other money to cover fees etc.
While there are lenders that will give you a loan of 100% of the value of the property, you will normally be charged a higher interest rate than if you took a 95% - or even lower - mortgage.
The larger the deposit you put down, the better all round it will be for you. You will pay a lower rate of interest on the mortgage. Plus, should property prices fall, you reduce the risk of going into "negative equity".
Negative equity is where you have a mortgage amount that is more than the value of the house. This means that when you eventually go to move, you will not have any equity in the house to use as deposit and will have to possibly even find more money before you move so that you can settle your existing mortgage.
Other Costs
Once you have your deposit sorted, you will also need to have some money put aside for additional costs associated with moving and / or buying a home.
Removal fees are just one consideration. The major costs you need to have sorted are those for the property valuation; the survey; plus legal fees. And then there is, of course, stamp duty!
Whenever a house over 124,999 is bought, stamp duty is paid to the Chancellor of the Exchequer. It is in effect, a tax.
Currently, as at November 2006, the amounts payable are:
Property value: Stamp duty
125,000 or less: Nil
125,001-250,000:1%
250,001-500,000:3%
500,001 or more:4%
These additional fees will run in to thousands of pounds. Therefore, it is important that you have as much money behind you as you can.
First of all, you need to work out how much can you borrow.
Normally, if you are buying on your own, a mortgage provider will lend you around four times your gross salary. So, for example, someone on 25,000pa could borrow up to 100,000.
There are some lenders that will offer you more but they will charge you a higher interest.
If you are buying with a partner or friend, then you can expect the lender to add their gross salary to the amount that you can borrow. So, using he figures in the example above, with a partner's salary of say, 23,000, together you could borrow around 123,000.
Some lenders calculate how much they are prepared to allow you to borrow by lending you three times your joint income. Using the figures in the example above, this would mean that you could get a slightly bigger mortgage - 144,000.
Any additional income (such as bonuses or commissions) may also be taken in to consideration as well.
Lenders will also look at the actual affordability of your monthly repayments. If you have lots of other outgoings, such as credit cards and loans, you may not be able to borrow as much. Conversely, if you have no other debt and the lender can see that you manage your finances carefully, you may be able to borrow more.
Deposits
Once you have found out how much you can borrow, you need to consider the deposit you will need.
Most lenders will allow you to borrow up to 95% of the value of the property. So you will need to have 5% of the value to put down as a deposit, as well as other money to cover fees etc.
While there are lenders that will give you a loan of 100% of the value of the property, you will normally be charged a higher interest rate than if you took a 95% - or even lower - mortgage.
The larger the deposit you put down, the better all round it will be for you. You will pay a lower rate of interest on the mortgage. Plus, should property prices fall, you reduce the risk of going into "negative equity".
Negative equity is where you have a mortgage amount that is more than the value of the house. This means that when you eventually go to move, you will not have any equity in the house to use as deposit and will have to possibly even find more money before you move so that you can settle your existing mortgage.
Other Costs
Once you have your deposit sorted, you will also need to have some money put aside for additional costs associated with moving and / or buying a home.
Removal fees are just one consideration. The major costs you need to have sorted are those for the property valuation; the survey; plus legal fees. And then there is, of course, stamp duty!
Whenever a house over 124,999 is bought, stamp duty is paid to the Chancellor of the Exchequer. It is in effect, a tax.
Currently, as at November 2006, the amounts payable are:
Property value: Stamp duty
125,000 or less: Nil
125,001-250,000:1%
250,001-500,000:3%
500,001 or more:4%
These additional fees will run in to thousands of pounds. Therefore, it is important that you have as much money behind you as you can.
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