Before the credit crunch, mortgages were really easy to get. However, this meant that people who couldn’t really afford one still managed to obtain one, which then caused the credit crunch. This made lenders bring in 100% and even 125% mortgages which made it practically impossible to get a mortgage. Finally, once the market resumed back to its original state, lenders to relaxed a little and started offering 95% mortgages again.
As an experienced Mortgage Broker in Coventry, we understand how hard it can be to get a mortgage. It can become even worse if you have a family or are living in rented accommodation and are looking at moving home but cannot quite afford it yet. We always get asked the same questions about deposits and how much you need. We find that they often come from First Time Buyers in Coventry. Here are some of the questions that we get asked:
Putting a down a deposit of more than 5% will definitely increase your chances of being accepted for a mortgage. If you are lucky, it could also lower the rate of interest that your lender offers you. You are showing that you have more than enough for a deposit so you are financially okay. You are presenting yourself as less of a risk to them. Lenders products’ are offered in bands of 5%, for example, 95% mortgages are the most expensive, followed by 90%, 85% and so on.
You can, however, we don’t recommend it as lenders are not a big fan of it. The lender will take your monthly payment of the personal loan as part of your credit commitments. Therefore, you will get a smaller mortgage than the one you would’ve qualified for without the loan. But you are essentially borrowing two lots of money and 100% of the mortgage which they don’t like.
Most lenders will always allow the deposit to be paid through a gifted deposit but some are stricter than others. Gifted deposits are often gifted to First Time Buyers who are looking to get onto the property ladder. A gifted deposit has to be from a family or friend and they will have to sign documentation stating that this is not a loan and purely a gift. Lenders will ask for ID and information from where the funds have come from.
Without gifted deposits, the property market would be in pretty poor shape. Parents are understanding how hard it is to reach a 5% minimum deposit and are offering their help to get their children onto the property ladder.
When you are applying for a mortgage, you will need to provide lenders with full details of your monthly/yearly income and outgoings. They need to ensure that you will be able to afford the recurring payments. The longer that you have been saving for a deposit, the more that it will benefit your application as they like seeing that you can manage your money well.
If you have had a large amount of cash deposited in your account recently, you will need to prove to the lender how you got this. Even for when you are selling a car, you will need a receipt and need to prove how much you sold it for and prove where the money went afterwards. The price must match the amount that you paid into your bank account.
Also, be careful when you are depositing large amounts of cash at a time as lenders will need to see exactly how you have earnt this. The Longer that the funds have been in your account, the easier the whole process gets.
The trickiest part of the application can be proving the source of your deposits as sometimes they are hard to get a hold of.
If you are selling your property, then the estate agent will give you a memorandum of sale as your proof.
There is still a minimum of a 5% deposit if you qualify for the Help to Buy scheme. On the equity loan scheme, your deposit can be topped up to 25% depending on the loan you get through. This will give you a lower rate mortgage.
Also, remember that you are taking a loan from the government and it is not a gift, you will have to pay it back. You usually get five years to pay off the loan. If you don’t pay it back within the 5 years then you will start to receive interest on the loan payment.
If you know how that scheme works, then this will all make sense. If not, you can find out more on our Help to Buy Mortgage Advice page.