Buying your first home is a huge deal – but how much do you really know about getting a mortgage? We spoke to property experts to demystify some of the biggest myths
Image: Getty Images/iStockphoto)
Buying your first home is one of the lifetime goals of many Brits.
It is one of the biggest financial decisions you’ll ever make – but how much do you actually know about getting a mortgage?
The team at Onlinemortgageadvisor.co.uk have cleared up some of the most common myths.
A mortgage is a type of loan you take out to buy a house.
You’ll need to stump up a percentage of the property cost in the form of a deposit and then the rest of the money is covered through your mortgage.
We’ve covered more jargon you may never have heard of about mortgages here.
You need a huge deposit – WRONG
Many first time buyers may assume they need to put down a 20% deposit to secure their home.
On a property worth £200,000, that means saving up an eye-watering £40,000.
But many more lenders are now accepting 5% deposits, which is good news if you don’t have as much money put away.
However, you should keep in mind that you’ll technically have less equity in your home to start with and your mortgage repayments will be higher as you’ve got more loan to pay off.
You may also find many 5% deposit deals come with higher interest rates, meaning you’ll be forking out more in the long-run.
Your credit score needs to be perfect – WRONG
It can be hugely worrying if you’re wanting to buy a property but your credit score isn’t up to scratch.
But having a less than perfect credit score or credit history doesn’t mean you definitely can’t become a homeowner.
Lenders take multiple things into consideration when assessing whether or not they’re going to accept your application – including income, assets and levels of debt.
This is all looked at in addition to your numerical credit score.
But you should keep in mind that a bad credit score does mean you’ll likely pay higher interest rates and you may need a bigger deposit.
You should weigh up the pros and cons to see if it is worth you spending time improving your score first.
Schemes to help First time Buyers get on the ladder
All lenders will give you the same deal – WRONG
No two mortgage deals are the same, so shop around when looking to buy your first home.
All lenders have different requirements and will make you different offers.
For example, there are different types of mortgages – including fixed rates, tracker mortgages, interest-only deals and standard variable rate mortgages.
A fixed-rate deal means your monthly payments stay the same until an agreed date, while a tracker mortgage rises and falls in line with the Bank of England base rate.
With an interest-only mortgage, you only pay the interest during the mortgage term and then repay the full amount you borrowed when it matures.
A standard variable rate mortgage is what you’ll be transferred onto when your current deal comes to an end.
As well as looking at how much deposit you need, you should look at the rate you’re paying, the length of your deal and any upfront fees.
If you’re pre-approved for a mortgage, you’re guaranteed to get the loan – WRONG
Pre-approval doesn’t mean you’re guaranteed a mortgage from the lender.
You’ll still need to go through the full lending process for it to be final, and if your financial or employment status changes after you’re pre-approved, your loan could be denied or altered.
Buying a fixer-upper is always the cheaper option – WRONG
If you’re handy – or up for the challenge – it can be super tempting to buy the property that’s significantly cheaper and needs renovation work.
But while you’re spending less money up front, you may end up forking out more than you bargained for on doing it up.
Unless you know you can stick to a modest budget, or have the skills to do most of the renovations yourself, buying a fixer-upper could end up costing you much more in the long run.
Do your research first to get a good idea of how much you’re really likely to be paying.