A lot of us want to safety and security of owning our own home. A house turns into a home when it is ours. When we no longer have to ask a landlord if we are paint a wall or hang a piece of art on the wall. When we can do what we like with the interior and maybe consider sprucing up the exterior. We don't want to spend money and time on a project which is ultimately not really giving us any benefit. If the carpet needs replacing, you can just get someone to replace it, rather than asking someone else which might take weeks or maybe months. So many of us want to get on the housing ladder, in order to reach that goal of home ownership. But a lot of us have debt. Is it indeed possible to get a loan for a home in your situation or owing money elsewhere? Can you get a mortgage with debt? Let's take a look!
What is a mortgage?
Firstly, let's break down exactly what a mortgage is. The term is thrown around a lot but you need to be crystal clear about what it actually is you're considering entering into here. A mortgage is a loan, which you take out in order to buy a property. You could also buy land with a mortgage, should you be wanting to build your own home, for example. The loan that you take out, the mortgage, is secured against the value of the house, until it is paid off. Meaning that if you miss payments, you could actually lose your home!
The amount of mortgage you can get will depend on your situation, the amount of down-payment you have for the home (deposit) along with your salary and the term you want to pay it back over. There are many factors that come into play and even though you can get a mortgage yourself, working with the bank, many people choose to work with mortgage brokers who can help that little bit more.
There have been mortgage holidays happening recently because of global pandemics. These are indeed possible if you're facing financial hardship. But you should always make sure you can keep up payments of your mortgage. If you're having any trouble with this, don't bury your head. Talk to the lender.
Can you get a mortgage with debt?
Now we've established what a mortgage is and what could happen if you fail to keep up with payments on one, let's look at the question of can you get a mortgage with debt? Well, the simple answer is yes, you can. When mortgage lenders look at your application, they will look at more than just your debt. These factors include your salary like we said. Also, the term over you wish to pay the money back and the amount you want to borrow in the first place. They'll look at your credit score, whether or not you're stable financially and they may even want to look at your bank statements.
The debt-to-income ratio is important to lenders because they don't want to lend you more money than you can actually afford to repay. There is no point in getting a mortgage where you have to pay back £1500 a month, if you earn £1000 monthly. Debt won't ruin your chances of getting a mortgage. However, if you don't have any, the lenders will likely look at your more favorably.
Top ways to improve your chances of getting a mortgage.
So that is one of the best ways to improve your chances of getting a mortgage. Rather than applying for a mortgage right now, with debt, why not clear that debt? If you take a year to clear the debt and maybe add some cash to your deposit, you'll likely be in a much better position. The percentage of your down-payment will be more. Meaning you'll likely be able to get a better mortgage deal, perhaps a lower interest rate.
Taking some time to clear your debt is important, but as is improving your credit score. You might have had a relationship with someone in the past and are still financially linked to them. Whilst you might not be living with them and that relationship might be completely dead in the water, banks will look at your past finances and who you're linked to and this might flag up. Failing to pay off a credit card, or a store card, or even missing payments on something like a mobile phone contract can bring your credit score down. This might, in turn, change how the bank looks at your. The higher your credit score, the better off you are viewed to a mortgage lender.
Your deposit.
When you're looking at how much deposit to put down, if you are almost on the border of another percentage, save a little bit harder, do without those takeaways for a couple of weeks and push that little bit more cash into your deposit fund. If you are going to put down 19% deposit, you might as well push yourself to 20%. You'll likely get much better terms and it might open you up to more offers with mortgage lenders. That extra 1% might be £1000 or £2000, but it's worth doing.
Other things to do are register to vote. It's near impossible to get a mortgage without this. The electoral roll data is used in identity checks to be sure to register. Your partner too if it's a joint application. If you're looking to apply for a mortgage in the next couple of months, avoid applying for credit in that time. This will do you no favours.
Top tips to save money in your new home.
One of the best things you can do is start cutting back on the money you spend before you move into your new phone. With lenders looking at your bank statements (usually the last 3 months) it will put you in a better position if they see that you don't spend quite as much as you might. Saving money is important once you get into your home as well. You'll likely have work on the house, or decorating that you want to do. Save up for these projects. You can save money by making sure you're on the best possible utility bill contract. That you're not paying for subscriptions that you no longer need. If you've moved 10 miles away from the gym, you're probably not going to visit. Especially if there is a park to run in nearby!
Settle into your home before deciding to do anything drastic to it. See what furniture you need to and plan for any unexpected bills on things you didn't think about. The council tax might be higher than you're used. The house might have a water metre so you need to fix the leaking outside tap. Make sure you can keep up those mortgage payments. Don't spend what you have put aside for that on other things in the home. So, can you get a mortgage with debt. Yes you can, just make sure you put yourself in the best possible situation to get the best deal!