Getting a Mortgage – Find A Suitable Property And Bid At Least 10% Below The Asking Price

Even in a strong property sellers market, it is advisable to go in low. As a first time buyer who has proof that you will not have any problems getting a mortgage (having obtained an agreement in principle) – you should not be afraid to make a low offer based on a quick transaction, providing of course you are in a position to move quickly.

In a weaker property market you can even consider going in even lower. The lower the property purchase price, the easier it will be for you when getting a mortgage – and more importantly, the easier / cheaper it will be to pay that mortgage off!

Mortgage Tip : Figure out what you can afford

Another one of our mortgage hints involves affordability. Given the harsh economic climate in the US at the moment, nobody wants to take on a debt that they will not be able to repay. So, sit down and figure out exactly how much spare cash you have left every month for a mortgage payment. Dont just take away your everyday living costs and other financial commitments from your salary/salaries and use the figure you have left. Leave yourself some breathing space with some spare cash that can cover emergency costs or rises in interest rates every month.

It’s also a good idea if money is tight to maybe use a couple of months before you apply for a mortgage to save up as much as you can for your deposit and other mortgage costs (see mortgage tip 7). The higher the deposit you have, the lower your loan will be.

Mortgage checklist

• Save a deposit
• Think about how much you can afford to pay each month on your mortgage
• Read up on the different types of mortgages available
• Be prepared - get as much paperwork as possible done in advance
• Always read the small print - both on your mortgage and any insurance you intend to buy. It could save you a lot of money in the long run

Choose Fixed vs. Variable Mortgage Loan

One of the biggest decisions with your first loan is what kind of mortgage to get. A variable-rate mortgage will have a lower interest rate and lower payments at first, but after the first five or seven years, the interest rate could increase significantly and drive up your monthly payments. On the other hand, a fixed-rate mortgage allows you to lock in the same interest rate for the whole mortgage. If interest rates are low and you plan to keep the mortgage a long time, a fixed-rate mortgage is generally best.

Reasons for Mortgage Loan Rejection

There are many different reasons why a potential borrower could be turned down for a mortgage loan. But it usually comes down to one of four things. Here are the four most common reasons people have their loan applications rejected by lenders:

• The borrower's credit score is too low.
• The borrower has too much debt.
• They borrower is asking for too much money, relative to income.
• The borrower lacks a down payment.

Some of these things tend to overlap. For example, having too much debt relative to your income (item #2) can actually lower your credit score (item #1).

What is home equity release?

Home equity is the amount of money someone has invested in their home - your home equity may be all or part of the market value of the property and its fittings. A home equity release loan is a loan which uses the equity you have in your home as security. In general, no repayments are made until you sell the house or die.

Home equity release agreements may be entered into by older people who do not have a large income, but have a lot of money invested in their house.   

Home equity release may be right for your situation, but it needs very careful consideration. There are no specific legal requirements for how a home equity release plan must be made, over and above the laws applicable to financial or property transactions more generally (e.g. the Consumer Guarantees Act and the Credit Contracts and Consumer Finance Act). A well structured plan will mean that you don't end up being evicted, moving to another property, or owing money to the lender above the value of the house. 

Signing on for a home equity release plan is a very big decision, but there are several places where you can get advice. Sorted.org.nz offers a useful online guide to equity release.

There is also an organisation called SHERPA (Safe Home Equity Release Plans Associated) that is a governing body for the organisations offering home equity release loans. Its members operate under a shared code of practice.

Arrangement Fee of a Mortgage

• Aka. Sometimes also called a Completion Fee.
• What is it? This fee can be paid at any point before the mortgage starts. It is the fee your mortgage lender charges to set-up your mortgage.
• How is it paid? You usually have the option to pay this upfront, or add it to the mortgage balance.
• Is it refundable if I don't proceed with the mortgage? If you are declined or decide not to proceed, you can normally get this fee refunded.
• Where can I find this fee on my KFI? This fee will appear in Section 8.
• How much roughly can I expect to pay? This will vary massively. It could be a cash amount, or could be a percentage of the mortgage you are applying for. Because of this it's difficult to give an idea of how much it might cost.