Mortgage How-To Guide:

• Finance/Mortgage Intro
• What can I borrow? Find out now
• Deposits & mortgage lender flexibility
• When you find a co-buyer
• When you find a property
• Mortgage Types and who they're for
• The mortgage process

Finance/Mortgage Intro
How much can you afford to spend is one of the most important things to discover when gathering your home buying research. It determines whether you can afford to buy at all, whether you'll be co-buying or co-investing by choice or by circumstances, and whether you have the choice of doing it alone.

Knowing your budget also has the benefit of saving you time and heartache. If you go off half cocked looking at property only to later find out that you simply cannot afford what you have been looking at it makes searching for your dream home at your budget even more difficult. The flip side of this particular coin is that when you speak to a mortgage broker or lender if you discover that you can in fact afford more than the budget level you've been searching in. Whilst this is cause for celebration you may have wasted some time looking in the wrong place.

So our essential recommendation is to speak to a mortgage broker today to discover exactly how much you can borrow and avoid the time you'd waste not knowing.

What Can I Borrow? Find Out Now
So when is the best time to speak to a mortgage broker to find out how much you can borrow? The answer is RIGHT NOW. You would not be reading this if you were not at least considering buying somewhere, and before you can even think of taking that thought anywhere else you should find out what your budget is. Guessing could leave you thousands or even tens of thousands out, and this can only guarantee wasted time and frustration. All of this could be avoided with a quick chat to uncover your true mortgage worth. Best of all this sort of information is totally FREE so get in touch with a mortgage broker today.

Once you have discovered what you can borrow, if you are registered on SharedSpaces it is important that you let everyone know that you have gone to the trouble of finding out. If you're a FREE Trial Member then you should put your borrowing ability in the text of your mini profile, and if you are a Full Member there's a special box for this information, we feel it's that important. One of the most important things a co-buyer will look for is whether you are in a similar financial position to them, and showing that you are can only increase your chances of finding your ideal mortgage mate.

Deposits & Mortgage Lender Flexibility
It is equally important to know (and show in your SharedSpaces profile) what your deposit contribution will be. How much do you have saved for a home? Is it in your account just waiting to be used, or are you expecting some money in six months time that will help? This information will determine how many and which mortgage lenders will be happy to do business with you and what your time frame is for buying a property. Of course the more mortgage lenders there are jostling for your business the better the mortgage rates you or your mortgage broker will be able to find and the lower your monthly mortgage payments will be

• 25% + deposit: If you're lucky enough to have this saved or available to you then you will have access to the most lenders and the very best rates the market has to offer to keep your monthly mortgage costs as low as possible.
• 5% or 10% deposit: These are the two most commonly used deposits in the market. 10% is preferred by solicitors as a deposit handed over on exchange of contracts, so if 5% is all you have you'll need to get your solicitor to negotiate this specially. 5% is certainly acceptable to most lenders, but 10% will certainly open more doors.
• 0% deposit: If you have no deposit at all that does not mean you cannot buy. It does however mean that you need to think about it all the more seriously though as getting a 100%+ mortgage will inevitably be more expensive. Although many mortgage lenders have jumped on this particular band wagon this still remains one of the most expensive ways of buying a property.

Whatever deposit you have on your own or combined with your co-buyer(s), it must be available as cleared funds at exchange of contracts when you are buying a property.

When You Find A Co-Buyer
Buying with one or more people, does not always mean simply adding together what each of you has been told you can borrow. Many mortgage lenders now offer multiple borrower or shared ownership mortgages, but the deals they offer can be quite different. Some will lend higher multiples; some will allow more people on the mortgage; and others offer lower rates. It is at this point that you should have another chat with your mortgage broker to establish how much you can borrow with your co-buyer(s), and which options are best for your combined circumstances.

Before you go looking at property together too seriously you should establish exactly what your combined budget is. That's mortgage and deposit. How much your co-buyer(s) have to contribute to the deposit will have a direct effect on the amount you can borrow and who through, so make sure this is discussed in full whilst you are chatting with the broker.

It is at this stage that you should be asking for your mortgage broker to get an 'offer in principle'. Once again this is FREE, and it should only take a few minutes for your mortgage broker to get this from the lender you have chosen. It's the mortgage lender's decision that you are, on the face of the minimal information that they have asked for at this stage, the sort of person they would be prepared to lend to. It's so simple and quick to obtain because it does not oblige them to lend to you, nor does it require you to borrow from them, but having an 'offer in principle' is very important when you're looking for or found a property as it shows bother the estate agent and the sellers that you are a serious buyer.

When You Find A Property
Mortgage rates change all the time, new deals are created by the lenders, and offers in principle expire, so it's important that when you find the property of your dreams you check in with your mortgage broker or lender to ensure that you are completely up to date. If anything has changed in your circumstances like your job or salary, finding a co-buyer or deciding to go it alone, coming into money so you can afford a larger deposit, or anything else that could effect the lenders decision, then it's in your best interest to let them know as soon as possible.

When you find the property you want to buy you want to be able to make sure that both estate agent and seller are made aware of how serious a buyer you are by letting them know you already have gone to the trouble of getting a mortgage 'offer in principle' and have the contact details of your solicitor to hand. This will earn your brownie points and could mean the difference between your offer being accepted or not. This is not the time for your first meeting with a mortgage broker.

Different Mortgages & Who They Are For
There are two basic types of mortgage with a multitude of variances on the theme. When you boil all mortgages down to what you are paying off you are left with repayment and interest only mortgages.

• Repayment Mortgage: This is the most traditional of all mortgage types. Your mortgage payments are divided into two distinct parts; interest and capital. 'Capital' is the loan amount that you borrowed, whereas 'Interest' is what you pay for the right to borrow this money. A repayment mortgage will pay off both of these over a fixed period of time (traditionally 25 years) so that by the end of this the property will be entirely yours with all mortgage debt paid off. In the first few years you'll be paying mostly interest and possibly some administration charges as they are usually weighted that way, but as time goes on you will pay off more and more of the capital that you owe your mortgage lender. As the percentage of the property that you own increases you will be building your buffer to counter periodic property market dips and interest rate rises. This is the most predictable and safest of mortgage types.
• Interest Only Mortgage: With this you will only be paying off the interest on your mortgage loan. The actual amount that you borrowed never goes down. The theory is that after a fixed period of time, when you are required to pay back your loan the property you bought with it will have increased in value to such an extent that the amount you borrowed to buy it would only be a small percentage of its value. In practice people tend to use this kind of mortgage when they are expecting that they will be earning more in the relatively near future so that they can then transfer to a mortgage that will start paying off the capital part of the mortgage debt. Alternatively, some lenders will allow you to transfer to an Interest Only arrangement if your financial position changes for the worse, although this can often come with a time limit before you have to transfer back, as well as accompanying administration costs.

At the next level down you have a choice of interest rate types to choose from; fixed or variable rates.

• Variable Rate Mortgage: A bank's Standard Variable Rate (SVR) is a rate that takes the Bank of England's (BOE) Base Rate and adds the bank's own profit to the top (say one or two percent). When the BOE base rate changes most lenders will change their SVR accordingly. Selecting to go with a variable rate mortgage is a little like betting on the property market. You'll never know in the long term what will happen to the interest rates, but the amount you'll be paying each month could vary depending on the BOE base rate or your lender's SVR. The reason to go with a variable rate mortgage is that because there is an element of risk involved that the rates will go up, they tend to be offered at lower rates than fixed rate mortgages. Often lenders will offer a discounted rate to new customers that will track just below their SVR for a fixed period of between one and three years and then the interest rate will revert to the SVR
• Fixed Rate Mortgage: This is where a non changing rate of interest is offered by the mortgage lender for a period of time. Generally the longer the time you choose to fix your rate for the higher the rate will be because it removes the gamble and risk that accompanies a Variable Rate Mortgage and replaces it will stability and the predictability of knowing exactly how much will come out of your account each month. The decision you need to make when deciding between these two mortgage types is whether you, or the experts that are advising you, believe that the variable rate you have been offered will rise above the fixed rate that you have been offered over the fixed period of time you have been offered it for. i.e. If a bank offers you a variable rate of 5% and a fixed rate of 6% both for a one year period before the rate reverts to the SVR, do you believe that the rate will go up by 1% or more in that year? Nobody will be able to give you a guarantee either way, so in the end it comes down to whether you like the predictability and safety of the fixed rate or are prepared to gamble a little to potentially save yourself some money.

Finally you have some of the many and varied options offered by mortgage lenders.

• Discounted Rate Mortgage: Usually offered to entice new customers, this could be a fixed or a variable rate mortgage where the rate is temporarily lowered for a pre-determined period of time (usually quite short at somewhere between six months to two years). Once the time period of the offer is up the rate will revert to the mortgage lender's SVR. It is therefore very important to check the history of how the lender's SVR has tracked the BOE base rate in the past and whether you'll be locked in for a period after your rate reverts in case you want to change mortgages at that point to find a better rate.
• Capped Rate Mortgage: This is a combination of the best attributes of the fixed and variable rate mortgages. The theory is that you have a maximum rate at which no matter how high the interest rate go you will never move above, but until you reach that rate you have all the benefits of a variable rate mortgage. As this is a mortgage smack bang in the middle of the more expensive fixed rate mortgage and the less expensive variable rate mortgage you would assume that the rates would reflect this. Unfortunately because there are still not so many lenders that offer this type of mortgage the forces of demand and supply have taken over and made these quite expensive to take out.
• Base Rate Tracker Mortgage: This is a variable rate mortgage that is directly linked to the Bank of England's base rate. As the base rate changes so does the rate of interest you have to pay each month. Because mortgage lenders do not always change their rates with the BOE base rate this is for the borrower who would like the benefits of a variable mortgage with a centrally determined variance rather than one determined by the profits of lending institutions.
• Flexible Mortgage: This will vary hugely between lenders, but the basis behind a flexible mortgage is that it changes with your circumstances. You should be able to overpay or underpay, take payment holidays or pay off lump sums if you wish with no or only minimal penalties for doing so. There will always be guidelines and restrictions on how many changes you are allowed to make, but if you feel that your circumstances may change or vary in the future it may be worth while seeking out this type of mortgage.
• Group Mortgage: This is more of a category than a mortgage type as you will find that most of the mortgage types we are discussing here could be taken up with one or more other people to help you onto the property ladder. Group mortgages have become increasingly popular since the launch of SharedSpaces.co.uk in 2005 as the original 'co-buyer network'. Gaining a mortgage with a mate, even someone you've only recently met through us is the only way some people can afford to buy, and for others it means the difference between what they can afford and what they would like to afford. Lenders will allow up to four people on a mortgage, but the deals that they offer are many and varied so it is best to speak to a mortgage broker about these.
• Offset Mortgage: Launched relatively recently in mortgage product terms this mortgage type combines you bank accounts with your mortgage and offsets the money you have in your accounts against your mortgage debt. This can have the benefit of paying less in interest, especially as interest tends to be calculated on a daily basis with these mortgages, but you do forfeit some or all of the interest you would have earned on your savings.
• Endowment Mortgage: Scary. These were very popular in the 1980's when the belief was that the stock market would just carry on rising for ever. The endowment is linked to the stock market and was supposed to ride the market's success to build to a value that could pay off the mortgage debt when it matured (and maybe even have some profit as well). Unfortunately for those who followed this advice, the stock market did not continue on its upward journey and after years of poor performance when the endowment policies matured many people found that they were not worth enough to cover the mortgage and there was no contingency to deal with this shortfall. The publicity that has recently surrounded this will ensure that this type of mortgage will have credibility problems for some time.
• 100% Mortgage: This is where the mortgage lender lends you the full value of the property you're buying. You will therefore have no equity in the property making this quite a risky choice to make. If property prices go down you will immediately find yourself in a negative equity position and if interest rates go up you will have no equity buffer to eat into if you would like to borrow some more money and add it to your mortgage. Of course if the property market goes up you will earn equity in your property without having to do a thing, which is why these mortgages were quite popular a few years ago when the market was booming. Don't get me wrong the market's not doing too bad at all right now, but there is more of a wariness that there was not a few years ago that we need to be sensible at the same time. 100% mortgages tend to be expensive as they have higher interest rates so should really be only considered under extreme circumstances. Other options to consider before this are Co-Buying and any of the schemes that we have discovered and placed on our Hot Property section for you to look at.
• Cashback Mortgage: This is even more expensive than the 100% mortgage. Basically this is a 100%+ mortgage as any cashback is often in the form of an extra loan that quite often is at a fairly high interest rate. This of course means that you start out home ownership experience in negative equity. Fine in a predictably strong market, not so sensible in any other type of market.
• Guarantor Mortgage: A little parental help can sometimes make all the difference. With a guarantor mortgage a parent's income is taken into consideration when the lender decides whether to lend to their sibling and how much to approve. As parents you must of course check that little Jonny or Jenny can actually cover the monthly costs of owning and running a home because as guarantors on the mortgage if they do not pay the lender will come to you for the shortfall.
• Self Certification: Created for the self employed, but widely used by anyone who is unable to prove their current income over a number of years. Self certification means providing the mortgage lender with your income, but not having to show proof of this income. The advantage is that mortgages become available to many more people, the disadvantage is that most self certification mortgages require a 25 % deposit, and the rates you'll pay will be quite high.
• Buy-To-Let Mortgage: If you are buying a property as an investment to rent out than lenders will point you at this style of mortgage. Basically it costs a little more but gives you the flexibility to rent the property out which is something with any other type of mortgage you'll require specific lender permission to do.

For advice on any of the above why not have a FREE chat with a mortgage broker from Mortgage Angels. They are there to help and advise you on anything mortgage related like how much you can borrow and what type of mortgage is best for you. Contact a mortgage broker today.

The Mortgage Process

• How much can I borrow? Speak to your mortgage broker to establish your EXACT borrowing ability.
• Mortgage 'Offer in Principle'. Should be gained BEFORE you find the home of your dreams.
• Full mortgage application. Once you've found the property you'd like to buy a full mortgage application will need to be made.
• Survey. Lenders will do a survey (usually a Valuation survey) to ensure that the mortgage loan is going to be on a property worth at least the money they are lending.
• Mortgage Offer. Once all the paperwork is complete and the survey back the lender decides whether to lend you the money.
• Completion. Once the legal process of buying a property is complete the mortgage money will be transferred from your mortgage account to the seller's.
• Repayment. The monthly payment of the interest only or the interest and capital on the loan over a period of time to pay off the mortgage.