Guide to Mortgages for the Newcomer
People buy properties to earn money easily by renting it out and also as an investment for the future. However, there is high risk involved when you invest in a property just to rent it out. A buy-to-let mortgage is the right choice for this purpose. Though it is similar to any standard residential mortgages, there are some basic differences between them. It is very important to understand the procedure before you chose a mortgage.
Facts About Buy-to-Let Mortgages
Buy-to-let mortgages are beneficial for a buyer but riskier for a mortgage provider than any residential mortgages that make buying a property for the rental purpose a much more difficult process. This is mainly because the landlord faces issues collecting the rent amount, or sometimes the property remains vacant without any tenants for a prolonged time. All this will affect the landlord’s income to repay the mortgage interest. Also, you are forced to deposit a large amount to get a buy-to-let mortgage approved as the lender considers it as a high-risk mortgage. This is calculated based on the property value.
Usually, it is 25% - 40% of the total value of the property depending on the mortgage type and the lender. The processing fee for a buy-to-let mortgage may be more compared to a normal residential mortgage as the buyer will get the advantage of paying interest only in the buy-to-let mortgage as compared to residential mortgages where the buyer repays interest along with a portion of the capital amount. This will remarkably lower your monthly installment for a buy-to-let mortgage. An experienced advisory team like Elementary Mortgage Solutions can guide you better in getting the appropriate mortgage to buy a property based on your financial status.
However, the capital should be repaid completely by the end of the mortgage term. Also by making a large deposit initially, the capital owed by the buyer becomes less towards the end of the mortgage period. By this time you will also have the option to sell the property and repay the capital. In buy-to-let mortgages, the processing fee of 1-2% of the mortgage value shall also be borne by the buyer along with stamp duty and landlord insurance.
What is a First-Time Buyer Mortgage?
With increasing demand to secure financial investments, in modern days owning a house or a property is considered as the most advantageous step in your life. If you are a first-time buyer and spent enough time to save some deposits in your past, it becomes easy to find the property that you can afford to purchase. Firstly you shall decide on how much amount you can borrow as a mortgage as it is crucial to find funds for the rest of the fee requirements like property search, mortgage processing fee, agent fee, home insurance, stamp duty, etc.
When applying for a mortgage as a first-time buyer, the lender will scrutinize your affordability by checking your annual salary and other incomes that you get from other sources, your expense, debts, and credit card loans, travel expense, household bills, child care, and other living expenses. The lender will ensure if you are a reliable borrower by checking your previous credit history. This way the entire process of getting a mortgage will take no less than 90 days.
Above all, before even starting your property search, get quotations from several lenders and compare which one will give you the most benefit. Make at least 20% of the savings deposit to invest in a property. Last but not the least make sure that you can afford monthly mortgage repayments without affecting your day to day life before accepting the mortgage offer from a lender.
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