16 July 2018

Mortgaging a property - the actual process (Part 3)

In Part 1 of my mortgaging a property series I shared five principles to begin with:
  • KNOW YOUR WHY - 'your why is what will sustain and determine your longevity'.
  • SACRIFICE LUXURIES - 'it creates breathing space in your finances and allows you to save more'. 
  • STAY IN YOUR LANE - 'don't let the greener grass on the other side waiver you, honour your journey.
  • GET INSPIRED - 'you may not know what you really want until you see it'.
  • IN ALL THINGS PRAY - 'if you don't do anything else, pray and have faith'.
Following on, in the second part of sharing my journey I spoke about:
  • DOING A CREDIT CHECK - 'in order to understand, manage and reconcile your credit'.
  • FINDING A MORTGAGE ADVISOR - 'an expert to walk you through the whole process'.
  • AN AGREEMENT IN PRINCIPLE - 'confirms how much the lender is prepared to lend you'.
  • RESERVE / MAKE AN OFFER ON YOUR DREAM HOME - 'and so the process begins...
In this blog post I wanted to solely focus on the process involved in applying for a mortgage and share my experience. As I've mentioned before, as a first time buyer it was so key to have an expert walk me through the whole process and this is why I would highly recommend having a mortgage advisor. The significant role in which they play cannot be undervalued or undermined. 
One of them being that they talk you through the different types of mortgage products that are available (see here) and fully explain the features of each type. In my case it was fitting to opt for a FIXED product and in so doing, I knew how much I was going to be paying every month for the next five years and therefore I could budget effectively and have peace of mind. 
In addition, discussing the strategy in regards to repayment options not only meant I would end up with the best option but also the safest. I opted for a repayment mortgage consisting of monthly capital and interest repayments to lender. Gradually my loan would reduce with each payment and therefore I would build up equity in my home and at the end of term I would be guaranteed to have repaid my mortgage. It goes without saying that buying a house at an early age meant that my mortgage term was longer [options ranged from 25 to 35 years] and subsequently reducing my monthly repayments. Important to note that the longer the mortgage term, the more interest I would have to pay but all this was brought to my knowledge by my advisor and the best choices were made.  
Following on, we began the mortgage application process and as part of it, my financial situation including my income and personal details were assessed. 
Below are some questions that I had and have been asked off late regarding the mortgage application process. I am in no way an expert l but I am going to answer to the best of my knowledge and please do bear in my mind that I can only speak from my own experience.

1. DOES HAVING CREDIT TO YOUR NAME COUNT?
Personally I had no credit cards or loans, except for a student loan - which is actually not taken into consideration when applying for a mortgage. That said, I've heard the argument that it is "helpful" to have some form of credit to your name prior to applying for a mortgage. It is also important to note that every time I've heard this point of view it has come from people who have bad credit OR aren't regarded as 'young first time buyers'. By 'young' its not a question of age but more so the duration in which one has been employed for and therefore because of the many years of working one has to justify where they committed financially over the years. First and foremost, this was not my story - I had no bad credit and had only been in a salaried job for a short period of time. However, I had other issues against me such as, I was a lone parent subsequently that meant I had a dependant and the question of affordability was real. Thankfully because I had been in rented accommodation for nearly four years my consistency in paying my rent on time every time meant that the lender could trust that I would keep up with my payments. Much like the verse in the Bible, Luke 16:10 that reads: 'whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much'. What a manual for living the Bible is ha!
All that said to say this, I strongly believe that the question isn't about having credit to your name, it all comes down to how you manage your finances. Sometimes, having credit isn't a good thing because it may actually affect how much the lender is prepared to loan you. And if you manage that credit badly it is a reflection of how you are likely to manage your mortgage and that could jeopardise an application.
"THE LESS FINANCIAL COMMITMENTS YOU HAVE, THE BETTER".

2. HOW MUCH DO I NEED TO EARN?
As I've already shared I was applying as a lone entity and this in my opinion is very different to when you apply with someone else and yet the question was never about how much I earned but it was always about how much I could afford. Again, my financial commitments played a major role in the ultimate decision and the lesser I had, the better. Below is an example;
if you earn £20 000 according to the mortgage calculator you can afford a house worth approximately £80 000 provided your monthly commitments are roughly £150 and you have no dependants. However, if you have a mortgage advisor they can not only pull out an additional £20 000 to your affordability but they can also sass out the market for the best product. Some products include offers such as free surveying, money towards solicitors, cash back etc. Once you know how much the lender is prepared to lend you this in my experience helps you realistically narrow down your property search. Notice that if you have a dependant and/or your monthly commitments are high your affordability will decrease.
HOW MUCH YOU EARN MAY DEFINE TO SOME EXTENT HOW MUCH YOU CAN LEND BUT ULTIMATELY YOUR OUTGOINGS VERSUS YOUR INCOMINGS DETERMINES IF YOU CAN ACTUALLY AFFORD THE MORTGAGE.
MANAGING YOUR FINANCES WISELY IS KEY!"
In answering some of these questions I hope that helps people understand what is assessed during the mortgage application. Once submitted, a mortgage application can take one to two weeks but unfortunately that was not my story. The process took longer than that but whilst all that was going on, a property valuation was instructed by the lender and I had to pay a fee of about £249. Eventually, after they had all the information they could have ever asked for [pun intended] a lending decision was made ...
However, I must say once the mortgage application had gone through my need of a mortgage advisor lessened. How so, you may ask? Because all the processes thereafter I felt as if we equally shared the responsibility. Unfortunately the solicitors my mortgage advisor recommended were much more expensive so I ended up using the ones that my developer (and friends) had proposed. By this point all my advisor did was keep me in the loop of next steps and advise me of when I needed to make payments, provide supporting information etc. 
In my next blog post I will be sharing on what some of those next steps were including the role played by solicitors, approximate fees involved, when they need to be paid by but even of more importance buildings insurance, contents cover and life insurance for any little mishaps that may occur. 
Thank you for stopping by!

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