At the time this was written, an interest-only mortgage was a popular choice. This means that each month, only the interest on the mortgage needs to be paid off. The rest of the loan is then paid back through other means, such as a pension, an endowment, or, in the UK, an ISA.
This means that the monthly payments don't actually pay back any of the initial loan, so you have to make regular payments to the other method to make sure you own your house outright at the end of the mortgage term.
Find out how much money you can borrow. This is the first step. This is based on how much money you make. In the UK, it is three times your annual salary before taxes and national insurance are taken out. Some lenders will give you up to seven times your salary right now. This is because people want to buy homes and the cost of borrowing money is low. It's not going to last.
Write down what you spend every day, every week, every month, and every year. Using a mortgage calculator, it's always a good idea to do a few calculations because income, expenses, and interest rates can change. Leave some room for the unexpected.
For joint mortgages, the lender is likely to give you either three times the annual income of the higher earner plus the total second income or two-and-a-half times the total joint income. You can figure out how much you can spend on a house by adding your savings to the amount they give you.
TIP: Many lenders may offer very low interest rates at first, but they may hide high fees in the fine print. Ask the lender to explain all of the payment terms, fees, extra costs, and rates that can change.
Don't just look at the fine print on your own. Even if someone explains it to you and you're still not sure, or if you get the feeling that a lender is hiding something, just walk away and keep looking for something better.
The lender will check your credit, talk to your accountant to make sure you make enough money, or even check your bank account to see how much money you have over time. Not every lending company will do this, but they do have the right to make sure that your income is what you say it is.
TIP: Get a professional survey done before you buy a house. People can be strange. They're happy to spend $234,000 on a house after looking at it for half an hour, but they don't want to spend $400 to find out if it's worth buying in the first place. At the very least, have a friend who knows how to build look over the place.
Find out how much the place is worth on the market. Get more than one opinion from different people. Compare it to the prices of other homes in the same area that are the same size and are currently for sale. This is what real estate agents and mortgage companies do. They decide how much a house is worth by looking at what other people will pay for similar properties.
Last, don't sign papers without carefully reading them first. Before you sign, go over them as soon as possible and make sure you understand them. This way, you won't have to sign in a hurry. If you don't understand any of it, ask a friend, relative, or accountant who is familiar with the jargon and what it means to explain it to you.
