Getting on the housing ladder is a major achievement for many young people.
Owning your own home is a major commitment and it can be very rewarding to have a place to call your own, without the worries of landlords increasing the rent.
It can also be fun painting the walls any colour you want!
If you want to eventually buy a house, your first step should be saving up for a deposit (check out the *Magical Penny* archives for saving ideas). Once you’ve made progress with saving for a deposit the next step, if you don’t have very deep pockets, is to explore your options for securing a mortgage.
Getting a mortgage can be a complicated process as lenders need to understand what you can afford; this can vary depending on many factors including your income and the interest rates available. The affordability of the mortgage is an important consideration for the lender and, in the UK since April 2014, affordability processes have been put in place that must be adhered to as part of the Mortgage Market Review.
These processes require lenders to now take into account a number of factors including your outgoings as well as your income. These numbers are often fed into a computer model that tells lenders what they are willing to offer to you.
However, what if the computer says no?
Depending on your circumstances you may find getting a mortgage hard, making you a mortgage misfit.
Even if you already have a mortgage you could still have trouble remortgaging or refinancing. You may have found some great refinance mortgage rates but if your circumstances have changed since you got the mortgage, you might have become a mortgage misfit.
This could happen if you’re self-employed, have a low income below £25k or you haven’t used much debt in the past (so your credit score is not well established).
If you think you might be a mortgage misfit, you still have options and you may be able to increase your chances of getting a mortgage by doing the following things:
- Reduce your debts and reduce general spending habits. Not only does this make you look less ‘risky’ to lenders, but it should also lead to having more money available to build up your deposit.
- Check your credit files to make sure there are no mistakes, nothing is coming up as unpaid, and that you’re not the victim of credit fraud. It also helps that all bank accounts and credit lines are registered to the same, current address and you have a landline as it demonstrates stability)
- Lastly, it’s a great idea to work with a lender that does manual underwriting: this is where they look at your unique circumstances, income and expenses rather than just relying on computer algorithms alone.
You need to find a lender with a careful approach to its underwriting of mortgages, carefully assessing each customer’s ability to afford a mortgage using their own data of expenditure.
Using an affordability calculator can also be really useful to use as a guide to make sure you’re not over-stretching yourself in your quest to become a homeowner, regardless if you’re a mortgage misfit or not!
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Nice infographic! When I got my first mortgage, my debts were a big factor and resulted in me being able to borrow less than what I wanted these. These days, as you say, it’s even harder to get a mortgage, so paying attention to debt levels and making sure your credit rating is in tip top condition is important.
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