Most first home buyers will need to obtain a mortgage, and this can seem like an overwhelming and scary process. However, when you are armed with the right knowledge, you can banish those fears.
With that in mind, I will be answering 5 mortgage FAQs.
Listed below are some of the most frequently asked questions I get about mortgages.
- What is a mortgage?
Essentially, a mortgage is a loan that you take out which is secured against the property you are interested in and enables you to purchase that home.
The mortgage lender has the option of taking possession of the property and selling it if you are unable to make your mortgage payments to recoup any losses they suffer.
The lender will charge you “interest” in return for lending you the money. Therefore, you will have to pay the lender interest over the term of the mortgage, and repay the amount you originally borrowed fully before your mortgage term ends.
- How much can I borrow?
Unfortunately, there is no set calculation. Every lender has their own policies and approaches as to how much they lend out.
The actual amount that you are eligible to borrow will be determined by the cost of the property you want to purchase, the size of the deposit you can make, and your income.
- What type of mortgage is best for me?
There are several types of mortgages to choose from – and different mortgage plans cater to different needs. To determine what’s best for you, make sure to take your needs, financial goals, and current circumstances into consideration. Do your research to better understand your mortgage options and choose the option that best suits your needs. Or better still, consult a good Mortgage Broker, they will give you the best options based around what your needs are.
- What is a pre-approval?
A pre-approval is a highly useful tool in the homebuying process. It’s basically the same thing as applying for a mortgage, just without a specific home attached to it. As part of a pre-approval, a lender will verify your employment and income, check your credit, and commit to lending a certain amount of money. A pre-approval can show sellers that you are serious about buying a home, and that you are likely to be able to follow through on your bid and close on their property.
- Why might I be denied a mortgage?
With so much money at stake and so much risk to lenders if they don’t do their due diligence, you can bet that you’ll be vetted hard.
If anything doesn’t look right – with you or the property – it’s not out of the realm of possibilities for your mortgage application to be denied. For instance, those credit cards or student loans can come back to bite you, either by pushing your credit scores below satisfactory levels or limiting how much you can borrow.
However, this doesn’t mean that you should give up! It just means that you have to go back to the drawing board and/or find a different lender who’s willing to work with you.
The Bottom Line
These are just some of the mortgage FAQs that I frequently get. If you have any other questions regarding mortgages, don’t hesitate to contact me for expert advice!
Will Bell Mortgage Broker is a mortgage and finance broker based in Melbourne specializing in residential home loans. Will is all about the average Australian understanding just enough of the broader economy to take action on your own personal economy. He is the host of the My Personal Economy Podcast which you can check out here.
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