Getting a Mortgage: Not Much Has Changed Over The Years
In the financial world, or sector as some say, much has changed over the years, but in as much as things change, they stay the same. The basics of banking, lending money, charging interest, and unfortunately collecting unpaid loans is the same.
The same can be said of buying a house and getting on the property ladder. The basics are the same, of course the prices have gone up as property in some areas has skyrocketed in price.
Getting on the property ladder may still be the dream for many people, but one aspect of reaching for that first rung, and subsequent rungs is the fact we need a mortgage to grasp it. Not many of us have the cash to by a house, so we need to go to Mr. Banker and borrow the money in the form of a loan, a loan called a mortgage.
Getting approved for a mortgage may seem like a long process and stressful, but it doesn’t have to be that way.
More of the Same Only Quicker
The changes in getting a mortgage today from say 25 years ago are subtle and not very different. It really is the same process it was years ago, only sped up today.
The bank or mortgage company needs to verify your details and certain information, you may need a deposit, the size of which can vary according to the type of loan you are to receive and the sale price of the house, and that is pretty much it.
The way the process has changed is the time that it may take to do all this.
Many years ago it could take weeks to get approved for a mortgage. The lender had to get documents verifying your employment from your employer, they required bank statements, a valuation on the property, and of course a credit history.
Then along came credit scoring, and that aided in speeding up the process, and also dictating what interest rate a borrower may receive. Also the use of computers, and the networks of credit bureaus so that our information and details can be accessed immediately.
Credit scoring gave lenders a quick look as to if a borrower was a good risk or not. A high credit score is good, a low credit score not so good.
A high credit score can mean a lower interest rate, a low credit score can mean a high or higher interest rate.
But having a low credit score or bad credit dos not always mean you cannot get a mortgage or a loan.
Bad Credit and Bad Credit Loans
Having a low credit score or bad credit can be a hindrance in getting approved for a mortgage, and for any loan.
* Review your credit report for any errors or omissions and have these corrected.
* Get on the electoral role.
* Pay your accounts on time.
* Do not take out a lot of credit.
* Do not apply for a lot of credit.
* Have a pattern of saving money.
One of the best ways to insure you get approved for a mortgage if you have bad credit, can also be one of the more difficult things to do, have a large deposit.
The larger your deposit on a property, the better your chances are of being approved for a mortgage. Of course saving up a large deposit can prove difficult.
Length of a Mortgage
One reason why underwriting or the process of getting approved for a mortgage is as detailed as it can be, is due to the length of the loan. In some instances a mortgage is going to be 10 years, or even 20 years, and in some instances 30 years!
A lender needs to take your details as a snapshot of you now, and project it ahead for many years to see how you may pay.
The reasons a mortgage may be rejected can be varied, but usually fall into a few categories:
* Affordability, being able to afford the mortgage payment each month.
* Credit history or having weak, or poor credit.
* No or too low a deposit.
* Employment, not having a job, which ties in with affordability.
Many of us want our mortgages to be as short as possible, in part to not be in debt, but also as we get older we want our homes paid for before we retire.
In today’s world, that may not always be possible. If we buy a property and take out a mortgage later in life, we may be still paying it off as we reach retirement age, or we need the longer term loan of 30 years to afford the property.
The longer the term of a loan the lower the monthly payments can be.
There are even reverse mortgages now. These mortgages are loans a home owner borrows against their property to pay them a monthly income based on the equity of the property. When the home owner dies, the bank or lender then can take the property back.
Naturally there are many guidelines and restrictions on this type of loan/mortgage.
Some banks are testing and offering “mortgages for life”.
This form of mortgage lending has the borrower paying payments until they die, or go into care. It allows the borrower to pay only the interest on the loan, which prior had the borrower forced to sell the property later in time to pay off the loan completely at a set date or time.
This longer form of a mortgage allows the borrower additional time to pay the interest on the loan, and they can live in the property without the need of selling it.
More and more lenders are looking into this form of mortgage lending.
The Sales Director of OneSavings Bank, John Eastgate said, “We would absolutely look at considering this type of loan borrowers.”
“Lending into retirement has been a major issue for the past couple of years, so now the Financial Conduct Authority has come out with this proposal I think it will open the gates to allow lenders to begin to offer these mortgages.”
“And I don’t think it will be small lenders wanting to offer them; major lenders will want to offer them as well.”
Mortgages4Life, Simon Little said, “The way we see it, most people in retirement now have pensions that are guaranteed for the rest of their lives. That makes them a safer person to lend to than someone in work who could lose their job at any moment. This is good news for borrowers.”
Just another way to allow borrowers to be able to afford a property and mortgage, and stay in the property for life.
So as things change they stay the same. Mortgage lending is basically the same as it was, only things have been sped up a bit to make the process more streamlined and quicker.