If you’re setting out plans to stop renting and finally buy a home, then you’ll obviously want to get the best mortgage rate you can. While it would be great if this was something easy and straightforward, getting the best possible mortgage rate takes a lot more than simply using comparison sites. If you’re worried about shooting yourself in the foot, here are a few tricks to getting the best mortgage possible.
Understanding Credit Scores
Modern mortgage lending is all centred around tiered pricing, meaning that mortgage rates are adjusted based on a range of criteria. One of the big ones is going to be your credit score. This will determine whether or not you qualify for certain loans, and the rate that you’ll pay on them. There’s a simple inverse relationship between the two factors here: the higher your credit score, then lower your potential mortgage rate, with all other things being equal. If you want to find out where you stand and make sure you’re not cheating yourself out of any great offers, you need to start keeping tabs on your credit score. Resources like www.MyCreditMonitor.co.uk will not only give you an accurate credit score, but also provide various resources for understanding and improving it.
Presenting Good Income and Employment Stability
All good mortgage lenders prefer candidates who can prove that they’ve been steadily employed for the past two years at the very least. Long periods of unemployment and treading water won’t look too good on your mortgage application, and neither will declining earnings repeatedly. Ideally, you would have had a steady job for the two years leading up to your application, or switched to a higher paying position in the same sort of time frame. As always, lenders are going to be exceedingly strict for self-employed individuals like me! Most conventional lenders will want two years’ worth of business income and income tax returns, and you may need to crunch through some irritating paperwork to allow them to obtain official transcripts of your tax returns. There are certain lenders who have set up services with specifically laxer rules, which you can read about in this article at http://www.thisismoney.co.uk/. Generally though, you may have to work a little harder as a freelancer to present good income stability.
By and large, you’ll need an exchange deposit or down payment worth 20% of the overall purchase price of the home in order to seize the best mortgage rates available to you. Because mortgages are often adjusted based on relevant risk factors, a loan with 5% down is generally considered to be higher risk than one with 20% down, therefore carrying a higher interest rate. However, this is just one of the reasons you should be looking to save up 20%. When your initial deposit comes under this golden figure, you may end up having to get mortgage insurance to put the lender’s mind at ease.
If all the different factors to getting a mortgage were causing you headaches, I hope this post made the whole thing a little easier to digest!