Do you want to own your own home? Maybe you're had enough of renting and are sick of annoying landlords? It could be that you've had to move in and out of so many different places because the owners decide to sell up and need you out. It might feel like it's not even worth unpacking your boxes anymore? With that in mind, how can you get yourself on the property ladder? Most of us don't have enough cash to buy a property outright, so we'd need to look at mortgages. Let's have a look at how to save money for a mortgage.
What Is A Mortgage?
When we're looking at getting a financial product, we must first fully understand exactly what it is we're signing up to. So much financial hardship happens when people don't realise what they're getting themselves involved with. So what is a mortgage?
In simple terms, a mortgage is a loan. One taken out to pay for a house. Usually they run for 25 years but the length of the loan term can be longer or shorter, depending on your circumstances. The lender agrees to give you the money and it is ‘secured' against the value of the property you are buying. Until the mortgage is paid off, your home could be repossessed. This means that the lender will take the home off you, selling it on to reclaim their money. With this in mind it is essential that you keep up with repayments. If you are struggling, talk to the lender as they might be able to help.
The amount you pay back will be more than the amount you borrowed. This is because of the interest rate, which varies mortgage to mortgage and lender to lender. In order to get a mortgage you usually have to stump up some of the cash yourself. This shows that you are invested in the property and have finances to put into the purchase. The deposit can vary depending on how much you are wanting to borrow and the terms from the lender.
How Much Deposit Will You Need?
In general terms, the more deposit you put down, the better mortgage deal you will get. The more you put forward in the first instance, the less you will be borrowing and the less you will have to repay, including interest. There are companies that will give you a mortgage if you put down a 5% deposit. Others will insist on higher deposits, like 10%. If you are able to put an extra percentage down, even if that means saving for an extra month or two, you'll get a better deal. We're look at how to save money for a mortgage in a moment.
If the house you are looking at is £200,000, a 5% deposit would mean you need to save £10,000. If the property was £500,000, if you're looking in London for example, a 10% deposit would be £50,000! As you can see there are many different factors that come into play when you are looking at buying a house. It can be the part of the country you are looking at buying in. The type of property you are wanting to purchase. It can even come down to the amount you earn and how much you can physically pay for a mortgage every month.
When working out what you can afford to spend on a property, the amount you can afford to save for a mortgage deposit can be a useful measuring stick. If a £50 deposit is out of the question, you're going to struggle to pay off the other 95%, plus interest!
Can You Get A Mortgage On Benefits?
How To Save Money For A Mortgage?
Once you know how much the deposit will actually be, you need to start saving some cash. This might mean changing your lifestyle for a while. Rather than after work drinks, you might need to head home and relax in front of the TV. It might mean cutting back on subscriptions or starting a side hustle to bring in some extra money. It could be changing our mindset towards money. Perhaps it's been something we've enjoyed spending and it has helped us live a lavish lifestyle for a few years. Now it needs to be seen as a tool to put in place to get to where you want to be, into your own property.
When you change your mindset and actually start putting money away, you might be surprised at how quickly it can add up. Instead of splurging on new clothes, use what you have and put that money away. The same with takeaways, the same with holidays. We're not saying cut back to doing nothing and leading a boring life. However you need to make a change which allows you to have cash to actually save. View your savings fund for your mortgage deposit as a bill that needs to be paid. Get that sorted every week or month before you spend on other things. If there are two of you, you should be able to save up twice as quickly by both squirreling cash away into a savings account.
Top Tips For Keeping On Top Of Your Finances When You Have A Mortgage
Once you have a mortgage deposit, have found your dream home and have organised a mortgage in principle with a lender, this isn't the end of the road. Whilst you don't need a lump sum to put down, you do need to make those monthly repayments. If you don't, you'll quickly lose your dream home in a total nightmare. It can be tempting to go into a property and start spending money on decoration and building work and furniture. This can be done over time, ensuring you have the money to pay back the loan for the bricks and mortar.
Don't lose sight of the amount you'll need to pay back when you know how to save money for a mortgage. You'll pay back more than you borrow, but you'll have a home that you can call your own. Look into paying down your mortgage should you be able to afford it. It'll help reduce the amount you owe and the interest you'll pay. Happy house hunting!
