Basic Mortgage questions

TwoYearToMove

I'm a bit confused as to how mortgages work.

So the amount of money you can borrow is dependent upon 4 times your year income. That's the most you can borrow. Let's say that's 180k. So does that mean you can only go for a property which is 180k or less? What if someone has 20k of savings. Does that mean you could actually look for a property for 200k? or are you still limited to 180k, but you just borrow less, because you are putting down more as a deposit?

cymruchris

TwoYearToMove said:

I'm a bit confused as to how mortgages work.

So the amount of money you can borrow is dependent upon 4 times your year income. That's the most you can borrow. Let's say that's 180k. So does that mean you can only go for a property which is 180k or less? What if someone has 20k of savings. Does that mean you could actually look for a property for 200k? or are you still limited to 180k, but you just borrow less, because you are putting down more as a deposit?

If you qualify for the £180k mortgage - you can put as much or as little on top as you like to buy a property of any value - so if you had £70k in the bank you could look at a £250k property.

The bigger your deposit of course - the better deal you'll likely get on the mortgage.

The 4 x rule is a general guideline - if you speak to a broker listing your personal circumstances they'll be able to give you idea of the options open to you. 

TwoYearToMove

cymruchris said:

TwoYearToMove said:

I'm a bit confused as to how mortgages work.

So the amount of money you can borrow is dependent upon 4 times your year income. That's the most you can borrow. Let's say that's 180k. So does that mean you can only go for a property which is 180k or less? What if someone has 20k of savings. Does that mean you could actually look for a property for 200k? or are you still limited to 180k, but you just borrow less, because you are putting down more as a deposit?

If you qualify for the £180k mortgage - you can put as much or as little on top as you like to buy a property of any value - so if you had £70k in the bank you could look at a £250k property.

The bigger your deposit of course - the better deal you'll likely get on the mortgage.

The 4 x rule is a general guideline - if you speak to a broker listing your personal circumstances they'll be able to give you idea of the options open to you. 

So the bit I put on top, that's separate from the deposit? I think it's the deposit bit that confuses me, because that appears to be connected to the price of the property, in this case 180k, and I would need to come up with 18k (10%) but if I had another 20k saved up, that wouldn't go towards the deposit? it would just go on top? So extra to the deposit?

sevenhills

TwoYearToMove said:

So the bit I put on top, that's separate from the deposit? I think it's the deposit bit that confuses me, because that appears to be connected to the price of the property, in this case 180k, and I would need to come up with 18k (10%) but if I had another 20k saved up, that wouldn't go towards the deposit? it would just go on top? So extra to the deposit?

The size of your deposit can affect the interest rate that you get, so you want a large deposit.

cymruchris

TwoYearToMove said:

cymruchris said:

TwoYearToMove said:

I'm a bit confused as to how mortgages work.

So the amount of money you can borrow is dependent upon 4 times your year income. That's the most you can borrow. Let's say that's 180k. So does that mean you can only go for a property which is 180k or less? What if someone has 20k of savings. Does that mean you could actually look for a property for 200k? or are you still limited to 180k, but you just borrow less, because you are putting down more as a deposit?

If you qualify for the £180k mortgage - you can put as much or as little on top as you like to buy a property of any value - so if you had £70k in the bank you could look at a £250k property.

The bigger your deposit of course - the better deal you'll likely get on the mortgage.

The 4 x rule is a general guideline - if you speak to a broker listing your personal circumstances they'll be able to give you idea of the options open to you. 

So the bit I put on top, that's separate from the deposit? I think it's the deposit bit that confuses me, because that appears to be connected to the price of the property, in this case 180k, and I would need to come up with 18k (10%) but if I had another 20k saved up, that wouldn't go towards the deposit? it would just go on top? So extra to the deposit?

They look at your incomings and outgoings - and say they give you an agreement in principle to borrow £180000 - possibly four times your salary - that's the amount you can borrow. In assessing your circumstances you'll have told them that you have £X available to go towards your deposit. (and will have told them about any debts).

Some deals require a certain percentage deposit - so you might get a 4 percent APR  mortgage with a 5 percent deposit - or a 3.5 percent APR mortgage with a 10 percent deposit. (Figures for example). 

So in this case - to get the 3.5 percent - they want 10 percent deposit - but will lend you £180k based on your circumstances. You then need to find the £18k on top if you utilise all £180k. So purchase price £198k. But if you see something at £210k - you can add on the extra without any consequences. You'll still get your £180k - you'll still get your 3.5 percent APR - you'll have just put in a bigger amount than needed to secure the deal.

If you saw something at £170k - less than they were prepared to loan you - you'd still have to pay your 10 percent deposit of £17k, so would only get a mortgage for £153k. 

But these are all very random examples to give you an idea.

Speaking to a  mortgage broker will give you clarity on your personal circumstances, as the bigger the percentage deposit - the slightly lower the APR rate will become in general. If you need 10 percent deposit for a certain mortgage deal but happen to have 20 percent - there might be a better option out there. 

TwoYearToMove

cymruchris said:

TwoYearToMove said:

cymruchris said:

TwoYearToMove said:

I'm a bit confused as to how mortgages work.

So the amount of money you can borrow is dependent upon 4 times your year income. That's the most you can borrow. Let's say that's 180k. So does that mean you can only go for a property which is 180k or less? What if someone has 20k of savings. Does that mean you could actually look for a property for 200k? or are you still limited to 180k, but you just borrow less, because you are putting down more as a deposit?

If you qualify for the £180k mortgage - you can put as much or as little on top as you like to buy a property of any value - so if you had £70k in the bank you could look at a £250k property.

The bigger your deposit of course - the better deal you'll likely get on the mortgage.

The 4 x rule is a general guideline - if you speak to a broker listing your personal circumstances they'll be able to give you idea of the options open to you. 

So the bit I put on top, that's separate from the deposit? I think it's the deposit bit that confuses me, because that appears to be connected to the price of the property, in this case 180k, and I would need to come up with 18k (10%) but if I had another 20k saved up, that wouldn't go towards the deposit? it would just go on top? So extra to the deposit?

They look at your incomings and outgoings - and say they give you an agreement in principle to borrow £180000 - possibly four times your salary - that's the amount you can borrow. In assessing your circumstances you'll have told them that you have £X available to go towards your deposit. (and will have told them about any debts).

Some deals require a certain percentage deposit - so you might get a 4 percent APR  mortgage with a 5 percent deposit - or a 3.5 percent APR mortgage with a 10 percent deposit. (Figures for example). 

So in this case - to get the 3.5 percent - they want 10 percent deposit - but will lend you £180k based on your circumstances. You then need to find the £18k on top if you utilise all £180k. So purchase price £198k. But if you see something at £210k - you can add on the extra without any consequences. You'll still get your £180k - you'll still get your 3.5 percent APR - you'll have just put in a bigger amount than needed to secure the deal.

If you saw something at £170k - less than they were prepared to loan you - you'd still have to pay your 10 percent deposit of £17k, so would only get a mortgage for £153k. 

But these are all very random examples to give you an idea.

Speaking to a  mortgage broker will give you clarity on your personal circumstances, as the bigger the percentage deposit - the slightly lower the APR rate will become in general. If you need 10 percent deposit for a certain mortgage deal but happen to have 20 percent - there might be a better option out there. 

Thanks for taking the time to help my old brain make sense of this.

So, if I find a property for 200k. The mortgage company will lend me £180k. And they want a 10% deposit. That 10% is not 10% of the 200k, it's 10% of the 180k? and that 18k gets added onto the 180k, adding up to 198k and I've got to put another 2k on top to meet the asking price of 200k?

fergie_

One slight caveat is where you are paying more than the property is worth (at least in the lenders eyes). This could be because its the perfect home and you are in a bidding war or you are buying in a falling market.

In this situation, the bank will tell you how much they are willing to lend against the property (regardless of your AIP) and it is up to you to make up the difference.

The other factor where having a large deposit can help is where you are looking for a larger multiple of income - potentially 5 or 6 times.

Edi81

the deposit is based on the sales price of the property. 

RavingMad

TwoYearToMove said:

cymruchris said:

TwoYearToMove said:

cymruchris said:

TwoYearToMove said:

I'm a bit confused as to how mortgages work.

So the amount of money you can borrow is dependent upon 4 times your year income. That's the most you can borrow. Let's say that's 180k. So does that mean you can only go for a property which is 180k or less? What if someone has 20k of savings. Does that mean you could actually look for a property for 200k? or are you still limited to 180k, but you just borrow less, because you are putting down more as a deposit?

If you qualify for the £180k mortgage - you can put as much or as little on top as you like to buy a property of any value - so if you had £70k in the bank you could look at a £250k property.

The bigger your deposit of course - the better deal you'll likely get on the mortgage.

The 4 x rule is a general guideline - if you speak to a broker listing your personal circumstances they'll be able to give you idea of the options open to you. 

So the bit I put on top, that's separate from the deposit? I think it's the deposit bit that confuses me, because that appears to be connected to the price of the property, in this case 180k, and I would need to come up with 18k (10%) but if I had another 20k saved up, that wouldn't go towards the deposit? it would just go on top? So extra to the deposit?

They look at your incomings and outgoings - and say they give you an agreement in principle to borrow £180000 - possibly four times your salary - that's the amount you can borrow. In assessing your circumstances you'll have told them that you have £X available to go towards your deposit. (and will have told them about any debts).

Some deals require a certain percentage deposit - so you might get a 4 percent APR  mortgage with a 5 percent deposit - or a 3.5 percent APR mortgage with a 10 percent deposit. (Figures for example). 

So in this case - to get the 3.5 percent - they want 10 percent deposit - but will lend you £180k based on your circumstances. You then need to find the £18k on top if you utilise all £180k. So purchase price £198k. But if you see something at £210k - you can add on the extra without any consequences. You'll still get your £180k - you'll still get your 3.5 percent APR - you'll have just put in a bigger amount than needed to secure the deal.

If you saw something at £170k - less than they were prepared to loan you - you'd still have to pay your 10 percent deposit of £17k, so would only get a mortgage for £153k. 

But these are all very random examples to give you an idea.

Speaking to a  mortgage broker will give you clarity on your personal circumstances, as the bigger the percentage deposit - the slightly lower the APR rate will become in general. If you need 10 percent deposit for a certain mortgage deal but happen to have 20 percent - there might be a better option out there. 

Thanks for taking the time to help my old brain make sense of this.

So, if I find a property for 200k. The mortgage company will lend me £180k. And they want a 10% deposit. That 10% is not 10% of the 200k, it's 10% of the 180k? and that 18k gets added onto the 180k, adding up to 198k and I've got to put another 2k on top to meet the asking price of 200k?

It's 10% of the house price that need that you to stump up as a deposit generally but there may be lenders only needing 5%. In your example, for a 200k house, then you need to put 20k down and hope you find a lender willing to loan you 180k

The less you give as a deposit, the worse the APR.

Don't forget all the other costs that you'll have to pay like solicitors