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Mortgages

There aren't many of us who can afford to go out and buy a house using cash. They’re also too expensive to put on a credit card or buy using a normal bank loan. So most of us buy our homes using a mortgage, which is a special sort of loan designed for buying homes.

The amount of money you can borrow does vary slightly but on the whole, most mortgage lenders say you can borrow up to 3.5 times your annual gross salary, which means the amount you get paid before tax. If you’re buying with someone else, then you can usually choose 2.75 times your combined salary or 3.5 times the higher salary.

Choosing a mortgage

There are masses of different sorts of mortgages to choose from, all with slightly different features and benefits so it’s a good idea to invest some time having a look around and learning a bit about mortgages before you sign up. There are plenty of financial advisers and special mortgage advisers who can help you or you can do the leg work yourself, dropping in on your local bank or building society branches or searching on the Internet.

The Financial Services Authority website has lots of good information on mortgages to help you on your way.

Making sure you can repay it

Taking out a mortgage is a big commitment so you need to make sure that you’ll be able to keep up with the monthly repayments. If you can’t, you could end up losing your home. Mortgages are what are known as secured loans, which means that your mortgage provider is lending you the money to the buy the home on the understanding that if you ever find yourself in a position where you can’t pay them back, they get your home. This is called repossession.

Our pages on budgeting can help you work out where your money is going and guide you through drawing up a budget.

Your mortgage provider will also want to know all about your finances and check that you are who you say you are so it’s important that you can lay your hands on records such as your bank statements and payslips. They will also check your credit history to make sure you don’t have lots of debts that you haven’t been able to pay off. You may want to take a look at the section keeping records and financial information and you may find it useful to find out how to check your credit history. You may also find it useful to have a look at our pages on dealing with debt.

In principle offers

Because you’ll want to know how much money you can borrow before you set off house hunting, most mortgage lenders will give you what’s known as an ‘in principle offer’. This is helpful because it sets out exactly how much money you have to spend on your home and also demonstrates that you are serious about buying. But you’re not signing up for anything so if you want to change mortgage providers later on you can. You should also bear in mind that an ‘in principle offer’ is made before the mortgage lender has looked into your finances and credit history so it is not a guarantee that they will lend you the money.

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