Mortgages: The basics

Mortgages: The basics

What is the meaning of mortgage loan?

A mortgage or mortgage loan, is the loan that is taken out most commonly when applicants are looking to purchase property. It can also be a loan taken out by existing property owners to raise funds, while putting a lien on the property being mortgaged (this can often be referred to as remortgaging or releasing equity).

How does a mortgage work?

So, you probably know what a mortgage is, but how do mortgages work? So unless you have all of the funds to purchase a property you will need to apply for a mortgage. Although there are some 100% mortgage schemes most mortgages require you to put down a deposit before you can borrow money.

How much deposit do you need?

The largest mortgages you can get are 95% mortgages. This means you would need a deposit of at least 5% of the cost of the house you’re buying.

Although you can get mortgages with lower deposits. The mortgages with the best – the lowest – interest rates are only available when you have a large deposit. So, a 20% deposit will normally get you a mortgage with a lower interest than a mortgage that lets you have a 10% deposit.

What you need to qualify for a mortgage?

You’re now ready to take the leap and become a homeowner and for most of us, homes come with mortgages. And unfortunately, not everyone who wants to buy a home can qualify for a mortgage. When you apply for a mortgage, lenders have to ensure that you’ll pay back your debt before they allow you to borrow.

All mortgage qualification requirements are dependent on the type of mortgage you’re looking to take out, so you’ll first need to understand different categories of mortgage loans. This is something our experienced mortgage advisers can help you with.
Although all mortgage types will have varied requirements, these are the basics that you’ll need to qualify for a mortgage:

  • A reliable source of income
  • A debt-to-income ratio that falls within permissible guidelines (If your debt-to-income ratio is too high, lenders may not approve you for a loan because they fear your income is spread too thin)
  • A fair or good credit score (Find out more about improving your credit score)
  • A down payment (The down payment you’ll need to produce varies based on the loan however most loans require a 10% down payment)

How much can you borrow for a mortgage?

When applying for a mortgage, mortgage providers will look at your income and outgoings (debt-to-income ratio) to see if you can keep up with repayments if interest rates rise or your circumstances change.

How many times your income can you borrow for a mortgage?

When you apply for a mortgage, the lender will cap the loan-to-income ratio at 4.5 times your income. However to work out the exact amount you can borrow you will need to take into account your debt-to-income ratio as well as your down payment amount.

How long do you need to have a job to get a mortgage?

In most cases, lenders will only allow you to count income if you have documented proof that you’ve received the money for at least two years. That said this is dependent on each lender.
What are the different types of mortgages loans?

There are many different types of Mortgages that are available and it’s important that you choose the one that is right for you. Here are just some of the available mortgages that we have access to:

  • Fixed Rate Mortgage
  • Help to Buy Mortgage
  • Standard Variable Rate Mortgage
  • Buy-to-let Mortgage (The FCA does not regulate some forms of buy to let mortgage)
  • Discount Variable Rate Mortgage
  • Offset Mortgage
  • Flexible Mortgage
  • Interest-Only Mortgage
  • Repayment Mortgage
  • Exclusive Mortgage Deals
  • Fixed Rates Mortgage

Find out more about the different types of mortgages HERE.

What mortgage can i get?

Want to find out which Mortgage is best for you? Pop into our branch, give us a call on 01903 2510053 or drop us an email to info@nepcotefinancial.co.uk or fill out our contact form and we’ll talk you through your options.

*Your property may be repossessed if you do not keep up repayments on your mortgage.

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