A mortgage is a large loan that helps people to purchase a property. Because of the price of real estate in the UK, most property owners have a mortgage. In this article, we will explain what a mortgage is and the eligibility criteria.
What Is a Mortgage?
A mortgage is a loan that covers the rest of the cost of the property once you have paid the deposit. The deposit is generally between 5-20% of the total cost of the property; it can vary depending on where in the UK the property is. A mortgage does not cover:
- The deposit
- Closing costs
- Lawyers’ fees
- Inspection costs
Mortgages are secured loans, the collateral being the property you purchase with the mortgage. In the UK, the lender will have the property deed until the mortgage is paid in full. A mortgage term will be between 5 and 40 years, during which you will pay both the principal and the interest. There are also short term mortgages with minimum terms of six months to allow property flippers to sell their property immediately after renovations.
Who Can Get a Mortgage?
Anyone can apply for a mortgage, but mortgage lenders will have a set of eligibility requirements that will determine if they will give you a mortgage and the terms of the mortgage. They will look at things like:
- Credit score
- Credit history
- Current debts
- Current assets
- Debt to income ratio
- Total deposit
Most mortgage lenders and mortgage comparison sites will have mortgage calculators that will give you an approximate quote. It is best to use these tools to get an idea of what terms may be available but to speak to a mortgage broker to get a quote. It is best to get a mortgage agreement in principle before you start your property search. The mortgage agreement in principle will give you an accurate amount that the broker will lend you.
How Can I Increase My Chances of Getting a Good Mortgage?
If you are planning to buy a house in the near to mid future, there are a couple of things you can do to improve your financial position in order to get favourable mortgage terms. Here are some ideas:
- Improve your credit score
- See if you can get your negative credit history removed
- Pay down debts to improve your debt to income ratio
- Look to increase your salary or earnings
- Save for a larger deposit
You and the person you plan to buy a house should undertake these tasks. If you are both purchasing the house, then getting a joint mortgage will increase the amount you can borrow.
Things to Remember About a Mortgage
It is not always wise to purchase a home worth the full mortgage approval amount. You should look carefully at the mortgage payments to see if you can afford to make them each month. Remember, you will have additional costs as a homeowner and have to pay for repairs and replacements.
Failing to make mortgage payments can severely damage your credit score, and continual late or missed mortgage payments could result in your house being repossessed.