Buying a home is one of the most exciting times of your life, whether you take the first step up the ladder or move up to the next rung. However, it can also be incredibly stressful. From choosing the perfect home in the right school district to securing the most suitable mortgage, there are dozens of important decisions to be made.
Some information is useful – the kind you get from expert professionals – but other advice, while it may seem legitimate, is not always better heeded. The mortgage experts at MyLocalMortgage have compiled a list of common myths homebuyers hear, along with the truth behind them.
1. Get the biggest mortgage you can afford
This is a throwback when property values were rising rapidly. Going up the ladder invariably meant embarking on an investment that would increase dramatically over the next several years and with salaries increasing year on year, if it was a stretch at first it would soon become affordable.
However, as we now know, it is not always guaranteed that wages will rise in line with inflation. Plus, if you’ve taken out a huge mortgage to buy your dream home and the recession hits, you could find yourself in negative equity. It is a real risk to take.
Instead of taking out a massive mortgage that you can barely afford, talk to your mortgage advisor about a realistic loan based on your personal situation.
2. You can no longer get a 95% mortgage
Certainly, it is more difficult than before to obtain a mortgage loan of 95%. However, there are programs such as Government Purchase Assistance, which aims to help more people own new built properties. While not the traditional 95% mortgage, lenders are still only required to find a 5% deposit, while the government lends you the additional 20%. So you will only need a 75% mortgage.
On existing homes, there is the option of the Home Buyer’s Mortgage Guarantee Program, which offers lenders the option of securing a mortgage with a high loan-to-value ratio of 80-95%. The government offers lenders the option of purchasing collateral on the mortgage loan. Earnings? The ability to buy a property with a small deposit, but the ability to lower and more affordable monthly payments.
3. The cheapest mortgage is the best option
Yes, cheap is fine, but when selecting a mortgage loan it is imperative that you look at the big picture. A smaller monthly payment might sound appealing, but is it a fixed rate mortgage or a tracker? Follow-up mortgages could increase quickly if the base rate increases, while fixed rates ensure that your monthly payment is on budget for a specified number of years.
It is also a good idea to consider the costs. Does your cheap mortgage come with huge arrangement fees? Is this really the deal it looks like? Also, look at the exit fees and prepayment charges – do they match your property plan or will they cost you dearly when you move in a few years?
4. You cannot get a mortgage if you are self-employed
Self-employed homebuyers actually have access to the same mortgages as someone who has a job. However, when salaried buyers have access to payslips, the self-employed do not. This means that the process of proving that you can pay off your mortgage could be more difficult.
Self-employed workers will need to file a SA302 form for their income to be considered by a lender. If you are self-employed and need expert advice, seek help from a mortgage broker who specializes in this area. They’ll show you the full range of options available to you and give you tips on how to put together a flawless application.
5. Your bank can give you the best mortgage
When shopping for mortgages, it pays to be thorough. While you can save time by going directly to your bank, first-time buyers and those with potentially difficult applications should always assess the wider market to find the most suitable mortgage.
Using a mortgage broker is always a good idea – their knowledge of local markets as well as their relationships with lenders can ensure you get the best deal.
6. Bills, debts and other expenses will not affect my application.
It’s wrong. All monthly expenses will be factored into your application to assess mortgage affordability. This includes grocery bills, utility bills, debt repayments, auto financing, or even what are considered “reckless” expenses at clothing retailers, betting shops, or nightlife.
All of these general expenses will help the lender assess your disposable income. Funded rentals or purchases will be annualized and the final amount deducted from your annual income.
On top of that, lenders will also stress test your finances if circumstances change, giving them and you confidence that mortgage payments will still be made.
7. If you can’t save for a deposit, get a personal loan instead.
Saving for a deposit is long and difficult – and for those who live in areas where house prices are above the national average, it can also seem endless.
While borrowing money with a personal loan might seem like a quick fix, it could ultimately get you turned down for a mortgage. This is because the lender would undoubtedly have concerns about your ability to repay the loan you secured for the deposit, in addition to paying off the mortgage each month. Borrowing money for a house deposit would give you a loan to value (LTV) of almost 100%.
This is why borrowing for a deposit is considered a risk. It could even be a deciding factor in the rejection of your application. However, financial gifts from the family are not considered a risk, as they do not have to be repaid. You should always be prepared to report and prove where your deposit funds are coming from.
8. Your budget is determined by the amount of your mortgage.
Once you have a mortgage-in-principle (AIP) agreement, you can start looking for the property of your dreams. However, even if your lender has agreed to give you a certain amount of money, that doesn’t mean you have to spend it all.
Mortgages can also be used to cover home renovations, so if you can only afford to buy one renovation, it’s a good idea to set your purchase budget at less than your total mortgage amount, leaving room in your spending for all those devices and accessories you really want.
9. The asking price of the property is the price you will pay
While in some markets this may be true, generally speaking in England and Wales people will bid below asking price and be willing to trade up. This means that huge savings can be made if you initially send a lower offer than the property is listed for.
In Scotland the process differs slightly. If a property is advertised as “fixed price”, it means that it will be sold to the first person to offer that price. This means it’s often first come, first served.
If a property is advertised as “offers ended,” to make an offer, your lawyer will note your interest. Once a seller has received a few interest notes, they can set a closing date – your offer must be made before the closing date.
If the property is labeled with an “indicative price,” your lawyer should advise you on a reasonable price to pay, then the seller will either accept your offer or set a closing date to find their best offer.
10. Buying an apartment is a bad investment
While this is generally not true, this assumption is based on the fact that the houses are freehold which means that you own the property for an indefinite period while the apartments or apartments are on lease, which means you own the property for a specific length of time only. At the end of the term, ownership reverts to the freeholder.
When buying an apartment, be sure to note the length of the lease. If a property is less than 80 years old on the lease, it can be difficult to sell or remortgage. You should also be careful to note any annual fees for maintaining shared spaces, such as gardens, hallways and hallways, and be clear about responsibility.
However, in cities or towns where fast-paced markets mean steadily rising property prices, flats and flats can still be a great investment.