Mortgages are special types of loans used especially for buying houses and other properties. When you are planning to buy a home but your savings are not enough to allow you to afford it, this is where a mortgage comes into the picture, allowing you to borrow the surplus so you can buy the house and pay the loan off later.
While many people think of mortgages as a huge burden, in reality, it is a practical solution since the loan allows you to buy a property with the chances of an increasing value over the passing days. This will add to your financial status, giving you a tax break, in addition to providing a place for you to live in without paying rent each month.
Opting for mortgages can be advantageous but it has a few downsides as well. Apart from being pricey, this special type of loan also follows a complicated procedure. Therefore, we have described it in simple terms for you.
Mortgage Made Easy
Nowadays, houses are expensive, and buying one is almost impossible for a majority of the people. To make it easier for people to afford the expenditure of buying a house, mortgage is a lending system where the buyer pays a fraction of the house cost while either a private institute or a bank makes the rest of the payment. The amount paid by the buyer is called down payment. The buyer must pay back the borrowed money along with the interest in a fixed period of time, called a term. The term to pay back the complete debt can be as long as 30 years.
However, the house remains mortgaged, until you make the full payment. This means that the house is put up as collateral and if the buyer stops making the payments, the bank can take the house away in a foreclosure.
Why Researching is Essential for Mortgages
Despite having various advantages, there are a few downsides to mortgages as well. For example, if you sign up for a mortgage, which is almost impossible for you to pay back in time, it will not only lead to foreclosure, wasting your money, but you will also not be allowed to buy another house for at least 3 to 7 years. Moreover, not only can you face tax issues but also you will also be facing bad credit score for not making the payments in due time.
Therefore, it is necessary that you research about the lenders as well as the mortgage structures before making a final decision. This research can save you a lot of money.
How to Get a Mortgage
The party that is providing the extra money is called a lender. You can apply for a mortgage from various sources such as from a bank or a building society. You can also use a mortgage broker or hire a financial adviser as well. Moreover, you can find the best mortgage by comparing all the available options online. Unless you are an expert on finances and especially in mortgages, we recommend you to take advice from an experienced finance adviser.
When going for a mortgage without any advice, make sure that you know exactly which property you are planning to buy, how much of the payment you can manage on your own, how much you need to borrow, how long will it take you to return the money, and what interest rate you will be comfortable with. Once you have confirmed all these details, the lender will prepare a document stating that the mortgage is being granted without advice. Since you will be signing it, you cannot make any complaints later on as the lenders will not be responsible for it then.
However, if you opt for advice, the lenders will check your finances in detail to see if you can afford the mortgage on the particular asset or not.
How to Apply for a Mortgage
Now that you are ready to apply for the mortgage, you must understand the following two steps:
Stage 1 Stage 1 is about finding out if a particular property is suitable for you according to your finances. In this stage, the lenders ask the buyers a series of questions to figure out which type of mortgage will be best for you and how long will it take you to return the money. The lenders will also try to investigate a little about your financial status as well to work out the amount they should be lending you. Moreover, they will inform you about the mortgage and whether they will be asking for a fee or not.
Stage 2 Stage 2 is about carrying out the process. In this stage, you apply for the mortgage and the lenders start a series of test to check your financial status and affordability range. This is where they will be asking you about your income, expenditures, and other details of your finances. In most cases, you will be asked to provide detailed answers to questions about your finances and future plans that can affect your total income and expenditure. They would like to know that in case the interest rates increase in the future, would you be able to make the required repayments within the fixed time period or not.
After detailed investigation, your application will be processed. If it is accepted, the lenders will provide you with an official document, which will be a binding offer, and a document explaining the terms of the mortgage. After the offer has been made, you will have a week to consider the offer. You can compare it with other offers available and study its future implications before making your final decision. This time period is called a reflection period. If you find all the terms to be according to your need, you can sign the contract and get your property.
However, you should always make your mortgage decision after thorough researching and checking all the available options. One great way to do that is to compare different mortgage options at Quiddi Compare.