First Time Buyer's Guide To Mortgages

Frags

Hi there,

Just after some advice really. I am just about to buy an apartment on a shared equity scheme, i have a 67% stake int he property and am taking the full amount of the mortgage which is £61k, i currenlt have a loan of around £3,000 is there any way i can get a mortage and borrow more to pay pff the loan to enable me to a little better off every month as my income isnt fantastic, my mortgage will be £360 per month and my loan is £150 and its a montholy payment i could do without. Any ideas?

sarakay_2

are we wasting our time?? first time buyers, hoping to buy in two years. we have bad credit (one ccj), and generaly bad credit from bad relationships in the past and my partner is currently on benefits after being ill for a long period of time. i am on a good salary and he will be back on full time employment in the next 6 months, with a very low depost (or possibly none at all), will we ever ever be able to get a mortgage to buy the council flat that we currently rent????

trulysaintly

Tommo1952 wrote: »

We have lived in our ex local authority house for the last 24 years and decided to buy it some 15 years ago.As these houses were built just after the war (WW11) as cheap alternative housing they were of steel framed construction and were given a life span of 50 or 60 years (So I am led to believe). On talking to a neighbour who is selling his steel house I now find out that in the next few years you will not be able to raise a mortgage on this type of property. Personally I love the simplicity of the house and every time I decorated (the very 1st time that is) I removed the either gyproc or upstairs hardboard interior wall cladding surveyed and painted the steel or as I am a welder replaced (under the window sill steels new one's) then lagged with rockwool insulation and dry lined and plastered all the interior walls.
I feel this house will outlast most other buildings. Should I place it on the market now or is someone scare mongering.
Cheers Dave

Hi Dave,

Your situation is not unusual, there are many houses built just after WW2 still standing with no sign of movement.

The key issue on a lending standpoint is that the lender looks at your property as 'non-standard construction'.

Every lender in the country has its own Lending Policy, where they accept certain builds. These range from the traditional style of build through to timber and steel framed properties.

Some steel framed properties have been listed as 'defective', where works are required to bring them up to a mortgagable standard.

The best way to start is to ask your local authority the build name of the property. Then, by making a few phone calls to some lenders, you can find out whether someone looking at buying your house will find problems in getting a mortgage.

At present there are many lenders who would consider, however in the more extreme cases they can load the interest rates charged accordingly, dependent on the risk.

All the best. :beer:

trulysaintly

sarakay wrote: »

are we wasting our time?? first time buyers, hoping to buy in two years. we have bad credit (one ccj), and generaly bad credit from bad relationships in the past and my partner is currently on benefits after being ill for a long period of time. i am on a good salary and he will be back on full time employment in the next 6 months, with a very low depost (or possibly none at all), will we ever ever be able to get a mortgage to buy the council flat that we currently rent????

Hi Sara,

The best way to start this process is to obtain your credit records from the reference agencies (Experian & Equifax).

This will enable you to review your credit history in full before you look to proceed. It can also highlight some areas of credit which need reviewing before you proceed. It only costs around £2 per report, so that's the ideal place to start.

Whether you need to wait until your partner is working once more depends on the amount you need to borrow and the affordability of any mortgage on your current income.

I would suggest that you obtain your credit reports first, then contact a mortgage broker who can help you through the next stage to get you where you want to be.

Follow Martin's tips on how to find the right broker.

All the best.

dunnomate

This is a really good guide izzysearch - but at the end of the day sometimes the head rules the heart and you just have to have the house !

cheers

dunnomate.

flubber

Hello. Just a quick query. I have bought a house and most of the stuff has been done. Was originally given a date to complete by the end of the month but the vendor has now come up with a date at the start of the following month. I was told that it is better to complete at the end otherwise the first mortgage payment is huge.
Basically if we complete at the start of the month we have to pay extra interest. My question is, is this interest taken off your mortgage total or is it just basically handing money to the mortgage company. Hope this makes sense.

ilovecolorado

Pre-qualification
Pre-qualification starts the loan process. Once a lender has gathered information about a borrower’s income and debts, a determination can be made as to how much the borrower can pay for a house. Since different loan programs can cause different valuations a borrower should become get pre-qualified for each loan type the borrower may qualify for.
In attempting to approve homebuyers for the type and amount of mortgage they want, mortgage companies look at two key factors: First, the borrower’s ability to repay the loan and, second, the borrower’s willingness to repay the loan. Ability to repay the mortgage is verified by your current employment and total income. Generally speaking, mortgage companies prefer for you to have been employed at the same place for at least two years, or at least to have been in the same line of work for a few years.
The borrower’s willingness to repay is determined by examining how the property will be used. For instance, will you be living there or just renting it out? Willingness to repay is also closely related to how you have fulfilled previous financial commitments; this explains the emphasis on the credit report and/or your rental payment history.
It is important to remember that there are no rules carved in stone. Each applicant is handled on a case-by-case basis. So, even if you come up a little short in one area, your stronger point could make up for the weaker one. Mortgage companies couldn’t stay in business if they didn’t generate loan business, so it’s in everyone’s best interest to see that you qualify.

Ratios
When analyzing a borrower’s loan application (Form 1003), lenders use two different debt ratios to determine if the borrower can afford his obligations. Known as the "Top" and "Bottom" ratios, the top ratio consists of monthly housing expenses know as PITI (principal, interest, taxes, home owner’s insurance and home owner’s dues, if any) divided by gross monthly income. The bottom ratio consists of PITI plus all monthly consumer debt payments (cars, credit cards, student loans) divided by gross monthly income.
Fannie Mae/Freddie Mac guidelines say that the top and bottom ratios shouldn’t exceed 28 over 36 (28/36) but they will go to 32/38 if the borrower is employed. Since ALL borrowers are employed one way or another, 28/36 has become the industry standard. If your ratios exceed the standard don’t worry as lots of programs will let back end ratios go as high as 50% with compensating factors such as a low Loan to Value (LTV) or high borrower liquidity.
It’s best to have your loan officer pull your credit report early in the process so you know exactly what consumer debt shows on it. This will also give you a chance to improve your ratios by maybe paying off low consumer debt balances or rescoring your credit to reflect your real financial picture.


Mortgage Programs and Rates
To properly analyze a Mortgage Program, the borrower needs to think about how long they plan to keep the loan. If you plan to sell the house in a few years, an adjustable or balloon loan may make more sense. If you plan to keep the house for a longer period, a fixed loan may be more suitable.
A borrower should also understand the relationship between rates and points. Points are considered to be prepaid interest and may be tax deducible (consult your tax advisor). Each point is equal to one percent of the loan. The more points you are willing to pay, the lower the interest rate will be.
Shopping for a loan is very time consuming and frustrating. With so many programs to choose from, each with different rates, points and fees, an experienced mortgage professional can evaluate a borrower’s situation and recommend the most suitable Mortgage Program, allowing the borrower to make an informed decision.
Since professional mortgage brokers only broker Mortgage Programs that are priced below retail, the borrower is getting an experienced mortgage professional at no extra cost. In fact, because of the mortgage professional’s extensive knowledge of the mortgage industry, he or she can often save the borrower extra money.

The Application
The application is the true start of the loan process. It usually occurs between days one and five of the start of the loan process. With the aid of a mortgage professional, The borrower completes the application and provides all Required Documentation.
The various fees and closing cost estimates will have been discussed while examining the many Mortgage Programs. These costs will be verified by the Good Faith Estimate (GFE) and a Truth-In-Lending Statement (TIL) which the borrower will receive within three days of the submission of the application to the lender.

Processing
Once the application has been submitted, the processing of the mortgage begins. The Processor opens Escrow and orders the credit report, Appraisal, and Title Report. The information on the application, such as bank deposits and payment histories, is then verified. Any credit derogatories, such as late payments, collections, and/or judgments require a written explanation. The processor examines the Appraisal and Title Report checking for property issues that may require further investigation. The entire mortgage package is then put together for submission to the lender.

Required Documents
If you are purchasing or refinancing your home, and you are salaried, you will need to provide the past two-years W-2s and one month of pay-stubs: OR, if you are self-employed, you will need to provide the past two-years tax returns and a YTD (year-to-date) profit and loss statement. If you own rental property, you will need to provide Rental Agreements and the past two-years' tax returns. If you wish to speed up the approval process, you should also provide the past three-months bank, stock and mutual fund account statements. Provide the most recent copies of any stock brokerage or IRA/401k accounts that you might have.
If you are applying for a Home Equity Loan you will need to provide a copy of your first mortgage note and deed of trust in addition to the above documents. These items will normally be found in your mortgage closing documents.

Credit Reports
Most people applying for a home mortgage need not worry about the effects of their credit history during the mortgage process. However you can be better prepared if you get a copy of your credit report before you apply for your mortgage. That way, you can take steps to correct any negatives before making your application.
A Credit Profile refers to a consumer credit file, which is made up of various consumer credit reporting agencies. It is a picture of how you paid back the companies from whom you have borrowed money, or how you have met other financial obligations. NOT included on your credit profile is race, religion, health, driving record, criminal record, political preference, or income.
If you have had credit problems, be prepared to discuss them honestly with a mortgage professional who will assist you in writing your "Letter of Explanation" or helping you remove erroneous information. Knowledgeable mortgage professionals know there can be legitimate reasons for credit problems, such as unemployment, illness, or other financial difficulties. If you had problems that have been corrected (reestablishment of credit), and your payments have been on time for a year or more, your credit may be considered satisfactory.
The mortgage industry tends to create its own language, and credit rating is no different. . Credit scoring is a statistical method of assessing the credit risk of a mortgage application. The score looks at the following items: past delinquencies, derogatory payment behavior, current debt levels, length of credit history, types of credit and number of inquiries. By now, most people have heard of credit scoring. The most common score (now the most common terminology for credit scoring) is called the FICO score. This score was developed by Fair, Isaac & Company, Inc. for the three main credit Bureaus; Equifax (Beacon), Experian (formerly TRW), and Empirica (TransUnion).
FICO scores are simply repository scores, meaning they ONLY consider the information contained in a person’s credit file. They DO NOT consider a person's income, savings, or down payment amount. Credit scores are based on five factors: 35% of the score is based on payment history, 30% on the amount owed, 15% on how long you’ve had credit, 10% percent on new credit being sought, and 10% on the types of credit you have. The scores are useful in directing applications to specific loan programs and to set levels of underwriting such as Streamline, Traditional, or Second Review, but are not the final word regarding the type of program you will qualify for, or your interest rate.

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Francoise
Mortgage Specialist
Colorado Home Loans

kiacelt

I AM THINKING OF SELLING MY HOUSE A MEMBER OF FAMILY, DO WE REALLY NEED ALL THE COSTS MENTIONED BELOW EG SOLICITORS FEES, ETC
THANKS KIACELT

AndrewSmith wrote: »

Please everyone remember that this is not a definative guide to mortgages, simply my own interpretation and opinion. Therefore don't start having a go or trying to prove me wrong by saying there are things I have missed etc. Mortgages is such a massive topic that it is impossible to cover everything in a post such as this. Also much of the actual advice on mortgages and the definition of suitability is dependant almost entirely on personal individual circumstances.

AndrewSmith wrote: »

OK Rant over

Different Types Of Mortgage

There are many different types of mortgage, I will list the basic ones here and a brief description:

Capital & Interest: More commonly known as a 'repayment' mortgage. You make a payment to the mortgage company each month which consists of Capital and Interest (hence the name). As long as you pay what you are asked, on time, for the term of the mortgage you have an absolute guarantee that you will owe nothing at the end. It does assume however that you will remain with that mortgage for the entire term. In reality most people will change mortgages / lenders / move home etc at which point the balance and repayments will be re-calculated to reflect the payments to date.

Interest Only: As the name suggests, you only make a payment consisting of Interest Only to the mortgage company. It is then your responsibility to ensure that, at the end of the mortgage term, you have the means of repaying the mortgage balance which will NOT decrease throughout the term (unless you make capital overpayments). In the past this would have been via an endowment policy or similar. The monthly payments will be less that the identical repayment mortgage but remember that you are merely 'renting' the money. Most buy to let mortgages are on an interest only basis.

100% mortgages: Quite simply it means that you are borrowing 100% of the purchase price or valuation whichever is lower. It means that you have to put no deposit down, however you will generally pay a higher interest rate for the pleasure.

125% mortgage: This is similar to the above however it works in as much as you will have a total loan amount of 125% of the purchase price divided between a Mortgage and an unsecured loan, with the same lender. Beware of anything offering you over the purchase price. In the case of a 125% mortgage your property must increase in value quite healthily before you can sell with enough to clear the existing mortgage and loan, and have some profit for a subsequent deposit. Personally I very rarely recommend these to clients, and on the occaisins that I do it is in conjunction with in depth discussion and warnings about borrowing more than the property is worth.

Negative Equity: Not a type of mortgage but I think ties in with the last 2. Simply means that you owe more than the property is worth.

Base Rate: The rate set by the Bank Of England from which mortgage rates are calculated. Think of it as a wholesale rate, you cannot go to the Bank Of England for this money. Tracker mortgages are based on this. They will mirror or 'track' the movements of this rate with a percentage difference.

Standard Variable Rate: Each lender has it's own variable rate. It is a no bells or whistles, no tie in, basic mortgage which is variable and can be whatever rate the lender chooses to set. Discount mortgages are based on the individual lenders standard variable rate, where they offer you a 'discount' off their normal rate.

Fixed Rate: Your rate will be set at the outset to a level stated by the lender for a set period of time (2,3,5 years eg). The rate you pay will not change in this period, then at the end it will revert back to the lenders Standard Variable Rate.

Self Certify Mortgages: This is a type of mortgage suited to people who are unable to prove their income. It does not change or increase the amount you earn, merely allows you to declare without evidence. Useful for recently self employed people with no accounts, or an employed salesman paid mainly on variable commission. The penaties for falsely stating your income are severe and may even land you in prison for up to 10 years.

Remember. Capital & Interest or Interest only are the types of Mortgage, to which all the above variations such as Fixed, Tracker, Discount etc can be applied.


Setting Up A Mortgage

Finding a Broker: This can be done in may ways. I usually suggest that it be someone who is know to you or has advised you satisfactorally in the past. You could ask friends and family for a recommendation or look in your local pages. Brokers will either deal face to face or via phone/email/post, or a combination of the two. Either is fine as long as you are fully comfortable with what you are putting your name to.

Usual upfront costs: Depends really on the type of mortgage and which lender you are going through. An average though would be:

Valuation (basic survey) £300-600
Booking/Arrangement fee (Charged by the lender and can be added to the loan) £300+ (some lenders charge as much as 1.5% of the loan)
Deposit (obviously) if you are using one.
Solicitors fees including all associated costs £1000-£1500 (based on a purchase of £120,000-£200,000)
High loan to value fee. If you borrow over 75% of the value, a sinlge premium indemnity policy is required by the lender to protect them against financial loss should they need to reposess. Up to 90% most lenders pay this for you. Over 95% the vast majority will charge it and add it to your mortgage. Varies dramatically from lender to lender but an average on a mortgage of £150,000 would be about £2600.
If possible I also recommend that you ahve an emergency fund of about £1000-3000 to cover misc costs.

What will they lend you: Again this varies from lender to lender, and the individual case (credit history, deposit size, employment history etc) however the average is 3.5-4x single income or 2.75-3x joint income. When calculating the borrowing amount you must first deduct the annual costs of any loans outstanding from your salary before applying the multiples. Ask me if you want examples. Some lenders will work on affordability, where by the look more at your net income monthly and calculate an affordable amount based on that.

Credit Score: This goes hand in hand with credit history, Credit history is how you have conducted your financial affairs over the last 6 years. Credit score is a combination of this along with detailed information regarding payment histories and certain points given for your individual circumstances. You can obtain your credit file at any time from one of the credit reference agencies such as Experian or Equifax.

Information you need to supply:It never hurts to carry out a simple credit search on yourself however just make sure that you dont do it too often.

Prior to my initial meeting with any client I always ask them to provide the following:

Driving License
Passport
3 year address history
3 year work history
3x payslips (latest)
Latest p60
last 3 bank statements
Current mortgage details / original offer
details of any outstanding loans/credit
details of any credit problems in the past 6 years

How long does it take to get the mortgage: Depends again on the lender and the type of mortgage you are getting. As long as the lender/broker has all the info they need you should expect the mortgage offer within 2-4 weeks.

Buying A House

Pretty much all the info you ask for here is in my other post Housebuying Moneysaving Tips

If not then simply ask me for more info

Hows this to be going on with?

Apologies for the length of the post

Anything else you need, just ask me.

Will cover the insurances a bit later.

Cheers (now with RSI)

Andy

homer_j_3

if you are selling privately then unless you are a competent conveyancer, you will still need a solicitor to do the contracts etc and ensure that you have no further liability to the property and that the mortgage company if fully paid off (if there is a mortgage on the property that is)

misriko

Andy (that ok?) quick question, bit confuse about conveyancing and whether the solicitors deal with these things? also i ahve been quoted 2 rates for the above for about £1000 everything included, does this sound right? Many thanks