If you are a young couple who plan to buy your first house in the near future, you are perhaps not sure of how the whole mortgage & finance system works. You might also not be sure whether you qualify for a mortgage. Let us provide some basic information.
A mortgage is nothing else but a loan that is issued by a bank or a similar financial institution. The difference between this and an ordinary loan is that a mortgage is a secured loan – the property which you buy is used as collateral. This has some implications for you: if you get in arrears with the monthly repayments and you can’t make a satisfactory arrangement with the bank, they will sell the house to a third party and evict you.
With the current economic downturn and the large number of properties being repossessed, you’re not likely to get a 100% loan as a first-time buyer. This means you’ll have to save up for a substantial deposit. How large the deposit has to be will depend on how much you earn, your assets and your credit record.
Even if you earn enough and are credit worthy, the bank must still approve the property you want to buy. They are going to send out a valuator to put a valuation on the property. Should he find that it’s worth less than what you intend to pay, the bank is not likely to grant you a loan unless you can put down a large deposit. You can’t blame them for this: it will be a high credit risk to lend you more than what the property is worth.
If you don’t want to spend months finding the perfect property, only to be turned down by the bank in the end, there is another option. You can go to them and apply for pre-approval. They will ask for proof of income and assets and check your credit records. They will then provisionally approve you for a certain amount. This still depends on the property being approved by the bank though.
It’s always a good idea to have some cash available when you buy a house. Not only can you use it to put down a deposit, but it can also come in very handy for legal and transfer costs and to make alterations or improvements at your new house. When you apply for a mortgage loan, the bank will also of course look more favorably at your application if you have a substantial amount on investment.
As you will see from what has been written above, the mortgage & finance industry isn’t all that complicated. A substantial savings account and a good credit record will go a long way to ensure that you’re approved for a mortgage. It’s all about proving that you’re responsible with money.
How would you like to get more expert advice from Lisa Udy? Learn more by reviewing Lisa’s fantastic website at Smithfield Utah Homes and Cache Valley Utah Homes
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