Some Myths Surrounding Mortgages and Buying a Property
It was if buying a property was not difficult enough, finding the right house in the right location, negotiating the price, making sure the property is sound and in good shape, getting approved for a mortgage, which means a deposit has to be saved up, and also making sure your credit is good enough to qualify for the mortgage loan.
As if this all was not enough to deal with, you also have to side step some landmines and myths that surround the mortgage and buying a house process.
Yes, there are some myths that people believe are true when it comes to getting a mortgage and buying a property.
So we are here to dispel some of those myths or not exactly right fallacies that some may believe.
I Have to Have Life Insurance
One myth that surrounds buying a property and getting a mortgage loan is that you have to have life insurance; either to have the mortgage approved, or to buy a property.
That is simply not true, a myth.
When you buy a property and take out a mortgage, one condition of the mortgage loan may very will be building insurance. This is insurance to protect the house or property itself, it may also protect any out buildings, fencing, or other aspects of the property.
This insurance is in place so that if anything happens to the property, it can be repaired, or possibly replaced, and the lender and you the owner are not out of pocket or facing a loss.
Most homeowners, and also tenants, will also take out contents insurance, to protect the contents inside the property.
This is a wise move financially as if a property were damaged or destroyed, the building insurance only covers the building, not the contents. Many of us have thousands of pounds invested in our possessions/contents inside the property.
Life insurance is insurance on a person’s life; it is said life insurance is not for the person insured, but for the living they leave behind.
The reason there is a myth about life insurance and taking out a mortgage, and why some mortgage lenders even state the borrower must have life insurance, which is NOT true, is so that if the borrower dies, the loan can be paid off by the proceeds of the life insurance.
If the borrower has a joint mortgage loan with their spouse or partner, life insurance on both does make sense. That way should anything happen to one of them, the other can pay off the mortgage and continue ot live in the property.
But life insurance is not necessary to get approved for the mortgage loan. It is NOT a legal requirement.
I Need a Large Deposit to Buy a Property
It is true that the larger the deposit you have to buy a property, the better your chances are of getting approved for a mortgage.
That is because the large deposit offsets how much you need to borrow to buy the property, and a lower loan amount reduces the lender’s exposure on the loan.
Those borrowers with large deposits tend to have a lower default rate on their loans.
And while a large deposit is good to have, there are ways to buy a property with little or no deposit.
Parents wishing to help their children get on the property ladder can gift equity in their property, or use savings they may have to pledge towards the mortgage.
Both ways to reduce the amount of deposit a new, young, borrower may need.
In addition, there are lenders willing to offer mortgage to borrowers with a low deposit, in many instances if they have a good credit score.
I Need a High Credit Score to Get Approved For a Mortgage
This not entirely a myth, but a myth that can be swayed some.
Most mortgage lenders do have a set figure or credit score required in order to get approved for a mortgage. Many have different levels for credit scores, so one high credit score may receive a lower interest rate that someone with a slightly lower credit score.
However, it is possible to get approved for a mortgage with a low credit score, and even if you have had bad credit in the past. This is by having a guarantor for the mortgage loan.
By having a good friend or family member sign as guarantor for the loan, the loan can be approved based on two factors:
* The fact there is a guarantor
Credit scoring is not used, your credit file may be reviewed, but to qualify you do not need a high credit score.
Obviously if someone is currently bankrupt, or has outstanding judgments which could jeopardy the property as other lenders the borrower owes money to may look to place charging orders against the property, these can cause a lender to not grant a mortgage, even with a guarantor.
However, having a guarantor in most instances, and being able to afford the property, can overcome any low credit score or credit issues.