So, you’re in a stable place, or maybe wanting to shake things up by starting a family, or you just know you don’t want the place you’re in to be your forever home, and you’re ready to start house hunting.
That’s great. But while you’re thinking about whether you want a garden or how you will use all the extra space, keep in mind there are things to think about to prepare for the mortgage. There is a lot you can do to save money in the monthly repayments to your mortgage, as well as ways to extend your borrowing power so that you can get the home you deserve.
Read on to find out all the details in our guide to the financial side of house hunting.
Deal with your debt
The problem with debt is that it gets in the way of every financial decision from the second you gain it. Even if your only crime was to go to college or get ill with no insurance, it will follow you around, informing the decision of every buy you have from then on.
And that’s still the case when you’re buying a home. The first thing your lender will look at is your debt-to-income, or DTI, ratio, which will inform them of how much of your monthly income is going to the minimum repayments of your debt.
If your debt is credit card debt, you can look into credit card management, which could help you wipe your debt. Other options include wiping your debt with a balance transfer card or by refinancing an auto loan.
Debt will also affect your credit score, which in turn can affect your monthly mortgage repayments. If you have a higher credit score you can gain a lower interest rate, and therefore will have to pay less down the line on your new home. You can raise your credit score by keeping on top of payments, checking your credit reports, avoid opening new accounts too often and use self-reporting apps like Experian Boost to keep an eye on its progress.
Wiping your debt outright will greatly affect how much your lender is willing to loan you, secure in the knowledge that your mortgage will be your first priority every month.
Extend your borrowing power
But there are other ways you can extend your borrowing power too. How much you can borrow comes down to how much income you are receiving every month, right? Then you have to show your lender every single bit of income that is coming in – and there are more options than you’d think.
You can present your lender with proof of interest or dividends from investments, income from a rental property, alimony, child support, social security or from a side business or part-time job. The only hiccup is that the latter two come with the stipulation that you have to have been earning regularly for the past two years to qualify.
Another obvious way to make the monthly repayments easier and extend your borrowing power is to add a co-borrower. A co-borrower doesn’t have to be a spouse, but can be a domestic partner, friend or relative. If you split the mortgage with someone who has a steady income and strong credit, you can convince your lender that you deserve a bigger loan.
But this isn’t just a name on a piece of paper. The co-borrower’s name will be on the property, and they will have to agree to split the responsibilities of maintaining the home and paying back the mortgage.
Save on your monthly payments
As with every financial decision, the more you pay up front the less you will need to pay down the line. Having some assets in the bank will also prompt your lender to rethink your borrowing amount, since you’ll have a backup should there be a rainy day so that you don’t stop paying your mortgage, but it might be better spent on your deposit.
A deposit of 20% is very appealing to lenders, and will allow you to forgo the PMI, or Private Mortgage Insurance added to your mortgage. Private Mortgage Insurance is designed to protect your lender, should you stop paying your mortgage. Without that 20%, the PMI will be folded into your monthly mortgage repayments. And as with anything else, the more you can offer up front, the less you will have to pay in monthly repayments.
And don’t forget that you can negotiate. Visit comparison websites and various banks and gain different quotes from them. If your chosen lender isn’t offering you a figure that’s good enough, present them with your lowest quote and see if they will consider matching it. If they won’t, then at least you’ve got another option to pursue.