Before you begin searching for the house of your dreams, you need to make sure you can get a home loan to pay for it. I’m sure you haven’t got hundreds of thousands of pounds saved in the bank, because if you had you wouldn’t be reading a post about loans. Right? Right! So let’s get started with everything you need to know about this kind of loan:
A home loan, otherwise known as a mortgage, is a loan taken out to buy property that is paid back over a set amount of time.
In order to get a mortgage, you need to fit into the guidelines of a lender. They will vary from lender to lender, but they should all determine whether you will be able to pay back the money as agreed. Don’t pigeonhole mortgages with other kinds of loans, as they are totally different.
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Mortgages usually last from 15-30 years, but you can pay them off early in some cases. Not only will you be paying the money you’ve borrowed, but interest on the loan too.
You must understand your payment terms if you’re planning on taking out a mortgage. Also, interest rates can change. This means you need to be fully aware of what you’ll do if they go up. A cash cushion is recommended so you’re able to support yourself should anything happen, e.g. a loss of your job.
Bear in mind that often, lenders will approve you for a larger mortgage than you need. This doesn’t mean you should go for it, or that you can afford it! Many people say that you should only be spending 25-30% of your income on your mortgage, insurance and bills. Use a calculator online to work out what is the best option for you.
You should also consider getting a buy to let mortgage. This allows you to be the landlord of your property, while a tenant looking to rent pays your mortgage. You could let your house in Erdington with Dixons and you’d get a lot of help and advice.
Your Credit Score
When applying for a home loan, a big element to take into account is your credit score. This should be in great condition, as it’s what lenders look at to work out whether you are trustworthy. Make sure that you’ve paid off any outstanding debts, you always pay your bills on time, and that you’ve sorted out anything you think may be a mistake. If you’ve ever shared an account with an ex partner or flatmate, that can affect your credit score too. You’ll need to make it clear you aren’t associated with them anymore to fix this.
As well as making sure your credit score is up to scratch, you need to prove that you can manage your finances in general. You should never teeter on the edge of your credit, as it will look as if you struggle to make ends meet.
The thing to remember is that the terms ‘mortgage’, and ‘home loans’ are so vast. They actually cover much more than mentioned here. This post will have hopefully helped you to understand them better. Many people don’t understand their mortgage or terms at all, and simply make the payment each month. Don’t worry if you still haven’t grasped it – you’ll get there one day!