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Smart mortgage tips
Smart Mortgage Tips

You've heard it all before: A mortgage is the single largest debt most people hold in their lifetime. Buying a home is a major life decision. Let's face it: applying for and obtaining a mortgage is stressful: there's the paperwork, the fees, the forms, the decisions, the uncertainty... pretty daunting stuff! The best thing you can do in the face of so many things potentially going wrong is to learn as much as you can about the process and how you can mitigate against mistakes. Here we offer seven key mortgage tips and mortgage hints to help make the whole experience run a little more smoothly.

Mortgage Tip 1: Fix your credit report

First and foremost on our mortgage hints list—and before you even think about applying for a mortgage—obtain copies of your credit report! By doing this several months in advance, you will have enough time to review it, challenge any errors that appear on it (and get them fixed), and start working on any aspects of your credit report that may be weak and need some improvement. This can be as simple as paying off a bill that's overdue or paying off a credit card. For more information on credit reports, visit the credit section of this site.

Amazingly, many consumers don't think twice about their credit rating: they think that if they have a good job and can put down a decent deposit that their mortgage application will be approved in a heartbeat. As you can read in our article Qualifying for a Mortgage, your credit history is one of the major factors that will be considered by any lender.

Mortgage Tip 2: Figure out what you can afford

Another one of our mortgage hints involves affordability. Given the harsh economic climate in the US at the moment, nobody wants to take on a debt that they will not be able to repay. So, sit down and figure out exactly how much spare cash you have left every month for a mortgage payment. Don’t just take away your everyday living costs and other financial commitments from your salary/salaries and use the figure you have left. Leave yourself some breathing space with some spare cash that can cover emergency costs or rises in interest rates every month.

It’s also a good idea—if money is tight—to maybe use a couple of months before you apply for a mortgage to save up as much as you can for your deposit and other mortgage costs (see mortgage tip 7). The higher the deposit you have, the lower your loan will be.

Mortgage Tip 3: Get pre-approval

To speed up the process and avoid disappointment, any mortgage tips or mortgage hints checklist, would advise getting pre-approval. Don't confuse your terminology: getting pre-qualified for a mortgage by a lender does not mean that you are pre-approved. Pre-qualification (often known as an Agreement in Principle) simply means that a lender has told you what you are likely to get for a mortgage if you apply; the lender simply looks at what your income is, what your current debt situation/outgoings are, and how much of a deposit you can put down if you do apply for a loan with the company. This is just a rough assessment that is often done on the spot.

A pre-approval, on the other hand, is much more involved since, during this process, you actually apply for a mortgage and go through the application process (so you will, for example, give the lender specific information such as salary slips and tax returns). The lender then verifies the information, checks your credit rating, and will then approve or reject your application. If you are approved, then it will basically be ready to go ahead as soon as you find a property to buy.

If you are pretty certain that you will get approved for a mortgage, then you may think that you don’t need to go through the pre-approval process. You may think it’s enough to get a rough idea of how much you potentially could borrow and then take it from there. But, don’t ignore mortgage tips and mortgage hints here!

Consider this: in a buoyant property market, estate agents and sellers, all other factors being equal, would much rather sell a home to a pre-approved buyer than a pre-qualified one, since the pre-approved buyer already has his or her mortgage offer on the table. This gives them the comfort factor of knowing that you can afford to buy the property and that the whole process will go faster as you don’t have to then go through the application process. Imagine losing your dream home to another buyer for this reason!

Mortgage Tip 4: Borrow the right amount of money

You should have already used our previous mortgage tips to figure out your budget, so stick to it! Don't just apply for the biggest possible loan that you can get. Don't assume, either, that your income will keep increasing so that eventually payments will be easier to manage. There is nothing more disheartening than being a new homeowner who is 'mortgage poor' or ‘housebound’—someone who has a nice home but who can't even go out for dinner or buy the kids a treat because your mortgage payment eats up so much of your income.

Don't assume, either, that owning is cheaper than renting (see Should I Buy or Rent? if you are not sure what to do). Remember that you will also have to pay for other post-mortgage stuff (see mortgage tip 7), property tax, insurance, utility bills, and of course, maintenance and repairs. These costs will not be necessary if you rent.

Be wary of your lender, too: although many US lenders are cutting back on the loans amounts they will approve at the moment, many will still let you overextend in some cases. It’s not their problem if meeting your mortgage payment every month means that you cannot save for the future, go out for the evening or take a holiday—as long as you pay the mortgage!

So how do you determine what you can afford? The article How Much Mortgage Can You Afford? gives some good mortgage tips and mortgage hints into your affordability. In a nutshell, try to limit your housing costs (mortgage payments, council tax, and insurance) to about 25-30% of your gross household income if you can. That will give you some breathing room.

Mortgage Tip 5: Shop around for rates and terms

If you have a good credit rating, then don't get stuck with a 'subprime' loan meant for someone with poor credit! Educating yourself and shopping around will help mitigate against a lender or broker trying to take advantage of you by charging too high an interest rate. Want to verify whether or not you have good credit? Consider our previous mortgage hints, and order your credit report to find out.

Mortgage Tip 6: Watch out for extra (and unnecessary) fees

Some additional lender fees are legitimate, but some lenders will also try to squeeze some extra cash out of you. Again, by educating yourself and shopping around, you will have some comparison points and will be able to get a good idea of what is out there.

Bear in mind that some lenders fees are charged as standard across the industry, but others are only charged at the discretion of the lender. So you could, for example, rack up some savings by using lenders that don’t automatically charge insurance penalties (if you don’t take out your home insurance with them) and/or early repayment charges (fees payable if you try to repay your mortgage early).

As any mortgage hints article will tell you, the variation between standard fees can be large; again, shop around to see who charges the least (and the most) before choosing your lender. Whatever else happens here, be careful: many borrowers complain that they still faced higher costs than were originally estimated.

Mortgage Tip 7: Factor in extra money

Don’t think that buying a property is just about your mortgage costs. It will cost you money in lender’s fees and legal fees to take out the mortgage in the first place. You may also have to arrange for insurance, removal company costs, as well as buy furniture, and you may also have existing rental costs to cover as well until your rental agreement is done. So, how can our mortgage tips and mortgage hints help you here?

Some sage advice: budget generously for this when determining what mortgage (and deposit) amount you can afford. Your lender and solicitor/conveyancer should also be able to give you an estimate of their total costs, so get this info as soon as possible in the process and set the money aside.

Once you've paid everything off, be prepared for even more cash to come flying out of your pockets. After all, just because you've finally got the mortgage finalized and paid off your solicitor, don't assume that you're out of the woods yet! Often, consumers will scrape together every last penny they have to focus on making as large a deposit as they can, but then other costs just add to the misery! Experts (and experienced homeowners) will all tell you that something unexpected always happens with a move. This can be as simple as a leaking tap that needs a plumber a week after you move in.

In fact, some people are so short of money when they finally get the up front costs paid that they are unable to make their very first mortgage payment—not such a great start! So, take expert advice about mortgage tips and try and have around three months' reserves in living expenses spare. This is a good idea in mortgage tips and mortgage hints terms, anyway, since it allows you a bit of room if (when) various expenses pop up unexpectedly.

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