A popular mortgage at the time of writing is an interest-only one. This requires that only the interest on the mortgage is paid off on a monthly basis. The rest of the actual amount borrowed is then paid off via other means e.g. a pension, an endowment, or in the UK, an ISA.
This means that the monthly repayments do not actually pay back any of the initial loan, therefore you must make regular payments to the other method to ensure can own your house outright at the end of mortgage term.
The first step towards is to find out exactly how much money you can borrow. This is worked out according to your income. In the UK, it?s calculated as three times your annual salary before Tax and National Insurance are taken away. Currently, some lenders will offer up to seven times your salary. This is due to high demand for property and the low cost of borrowing. It is unlikely to last.
Write up your monthly expenses; factor in daily, weekly, monthly and yearly outgoings. It’s always worth making a few calculations, using a mortgage calculator, as incomes and expenditure can vary from time to time, as do interest rates payable. Allow some leeway for the unforeseen.
For joint mortgages, the lender is likely to offer you either three times the annual income of the higher earner plus the total second income, or two-and-a-half times the total joint income. You can add your savings to the amount offered by them in order to estimate the range of house prices you can afford.
TIP: You may find many lenders offering very low initial rates, but hiding high additional costs in the small print. Ask the lender to explain all payment conditions, fees, additional costs and variable rates.
Don’t just read the small print yourself. If you have doubts even after having it explained to you, or if you have a feeling that a particular lender is hiding something, just walk away and continue looking for something more suitable.
The lender will run credit checks, confirm income with an accountant, or even access your bank account to review your balance over a period of time. Not all lending institutions will do this; however, they do have the right to check your income is what you claim it is.
TIP: Don’t buy a property without a professional survey. Human beings can be perverse; happy to spend $234,000 on a house after a half-hour’s viewing, but begrudge spending $400 finding out whether it’s worth buying in the first place! At the very least, get a builder-friend in to give the place a thorough going-over.
Find out the true market value of the place. Get more than one independent valuation. Compare it with the prices of similar-sized properties currently on sale in the same area. This is what mortgage companies and estate agents do. They value houses based on what other people will pay for similar properties.
Lastly: Don’t sign papers without reading them thoroughly. As soon as possible, before you sign off, review them, and make sure you understand them, so you won’t have to sign in a hurry. If it’s all gibberish to you, get a friend, relative or an accountant who knows the jargon, and what it implies, to explain it to you.
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