Posts tagged Finance

Kickstart Your Journey Toward The Property Market – Mortgage Part 3

We are now at the third part of the Kickstart Your Journey Toward The Property Market series. Getting that Mortgage. The most exciting part of this journey, where you are ready to purchase your house. To make decisions on the type of house you would like, from New Build, Old Build, Semi-detached, Terraced, Detached. Choices are abundant but just because you want a five bedroom, detached house in the Countryside overlooking a lake or whatever tickles your fancy does not mean your bank account will be saying yes.

Kickstart Your Journey Towards the Property Market
It is good to dream Big, just make sure your bank account has the same dream.

Hopefully, you have read and applied the points in Part one and Part two of this series.

MORTGAGE IN PRINCIPLE (MIP)

Before you can apply for a mortgage, and most of the time before you can make an offer for a property you will need to have a MIP, also known as Decision/Agreement in Principle. This serves as a confirmation that you have lenders who are prepared to lend to you. When you call an estate agent to make a request for purchasing a house, they will usually ask for this. If you do not have one, the estate agent can and will willingly offer you the services of their mortgage broker who can take you through all the necessary steps.

MIP is used to calculate whether or not you can afford the amount of money you wish to borrow. This is done by factoring in your income and outgoings. This also involves a credit check. Each lender has different criteria they uphold. Try not to overdo this as too many credit checks at one time. This will affect your credit score negatively.  It is important to know that the MIP’s are averagely valid for a period of 3 months.

MORTGAGE BROKER

A mortgage broker is an in-between man/woman between you and the lenders. I personally did not use one, I do know however many know others that have used and recommended them. However, do bear in mind that they come at an additional cost.  They have access to more lenders (over 170) and can compare for you straight away. But if you are trying to avoid cost you can speak to the relevant lender (bank or building society).  It is best to weigh the options to see if you have the time and energy to do this yourself.  Finding the right mortgage can be a daunting task and to have a rejected application will have a negative impact on your credit score (remember we want to keep that score tight and good). A mortgage broker will be able to advise you on which lenders will accept your application before you put it through. If you are clueless about these things and you do not want the hassle then I suggest you find one, it will be worth the cost.

YOU ARE ALMOST AT THE END!

Once you have found a house, made an offer either by yourself or with a mortgage advisor, your next step is to make sure you have a solicitor to complete the legal section of purchasing a house. These include stamp duty, land registration, building surveys etc, there is a whole heap that I will not bore with here. The process will usually take a couple of weeks to be completed. This will depend on whether the property is on a chain or not.  There are different types of mortgages to be considered.

  1. interest-only mortgages
  2. repayment mortgages
  3. 95% and 100% mortgages
  4. fixed rate mortgages
  5. discounted rate mortgages
  6. cashback mortgages
  7. first-time buyer mortgages
  8. buy to let mortgages
  9. variable rate mortgages
  10. tracker mortgages
  11. capped rate mortgages
  12. offset mortgages
  13. flexible mortgages

As you can see the list is long and to elaborate on all we will here forever. But do not worry I will not leave you hanging. Here you can find all the necessary information about the different type of mortgages.

“you can do it if you put your back into it”

Ice Cube

Should I or Should I Not Get A Credit Card?

Are you thinking about getting a credit card? Or maybe you have considered acquiring one, but decided against it due to the not so great reputation it has? Or you have one but you are worried it will cause you more damage than help financially?  I went through the same notions when I was initially offered one by my bank. I vehemently refused the offer initially; I was very set on not having one, to me, it was almost like a taboo. Fast forward to a couple of months later when I got my first credit card at the tender age of nineteen or twenty. What change my mind you wonder; I realised I could use it to my advantage, it was much better for me to use my fear rather than let my fear have me, in other words, I have the credit card, the credit card doesn’t have me.

“It is much better to use my Fear rather than let my fear have me”

I hope to show you how you can construct the use of a credit card to your advantage.

Now before we start drawing conclusions, I am in no way encouraging people to get a credit card, I am also not a financial advisor. This is based on my experiences and knowledge I have gained over time. I want to highlight how it can be helpful, especially for someone who wants to build their credit score and move into purchasing anything through finance, whether it is as simple as a phone contract or something as major as mortgage or car. At some point we leave the bubble surrounding us, whereby our parents or guardians do everything for us and we begin to engage in all things ‘adulting’, like paying rent, bills, learning about the existence of CREDIT SCORE, etc.  During this transition we begin to ask the important question, do I need or want a credit card? Come to think of it, having a credit seems to just fit into that lifestyle although it is not for everyone.

My first credit card was offered to me by the bank I was with. At this point, I was very wary of taking on this offer because like everyone, I was scared of running into debts I could not afford to pay back. I had heard enough horror stories of how it turned into a burden and hanged over your head. I was also in full-time employment and preferred to save money and purchase anything I wanted. As great as this was, it was not reflected in my credit score and made it difficult to get a phone contract in my name. It is not because I didn’t have the money to pay it back but there was nothing in the system to give the creditors information with regards to transactions and ‘settled accounts’.

The first and most important question we must ask ourselves before deciding to acquire a credit card is this, what is my intention for this card. Essentially do you need it? how does it fit into your plans financially? For someone who had moved into employment after completing college and practically moved out of the home, I was very determined to be as independent as I possibly could be. You can obviously imagine my frustration when I couldn’t even get a phone contract in my name. I couldn’t carry on having my parents purchased things for me either, yes it would have solved my initial problem but it would be of no benefit to my credit score nor did it fit into my future plans. I wanted to build up my credit score to facilitate me getting on the property ladder which by the grace of God I have achieved.  However, it is important to note that there are other ways to build up your score, a credit card is not the be all and end all.

Firstly, don’t just accept a credit card from any Tom, Dick, and Harry. I am constantly receiving letters from credit lenders advertising how easy it can be to get a credit card with them; irrespective of the state of my financial circumstances or credit score. If things are bad for me financially, why they think I would want to borrow money, I will most likely struggle to pay back is beyond me.

Should I or Should I Not Get Credit Card
Do-I-Need-a-credit-card

Personally, I believe it best to get a credit card with your current bank. You already bank with them so this will hopefully reduce the process, they will also and should advise you on the best payments for you in accordance with your financial state. (They will still do a credit check).

Secondly, only take a limit you can manage easily to start with. You will have the opportunity to increase it in the future. For example, I was offered a limit of £1500 for my first card. To me this was completely unnecessary, I didn’t need or want that amount like I said I was very weary when I initially made the decision to get one. I asked them to reduce it to £500. This was a number that I was comfortable with and knew I could always pay back at the end of the month.  Remember to stick to your decisions and don’t allow anyone to convince you otherwise, you know your finances best.

Thirdly, check the interest rate (known as APR) placed onto the card. I have noticed some as high as 30 to 40 percent. People are usually caught out by how easy it is to get the card with some of these credit lenders that they do not pay attention to the APR until it is too late.  Banks are always making offers on credit cards, where they are no interest for the first year or couple of months.  These offers are good for first timers, as it will allow you to track how well you manage the account without worry of the amount increasing by interest if you are not able to pay in full at the end of the month. This is also a great way to find out if having a credit card is for you.

Last but not Least, before taking this step it is important to talk to experienced adults around you and get their advice. This really helped me in making my decision. It is important to listen to your Elders, mainly the wise ones, and learn from the mistakes of the not so wise ones. I am a firm believer that some mistakes are made so we don’t have to make them.

How then can you use your credit card to your advantage?

1.Don’t overspend. Just because the money is there does not mean you should spend it. Nor do you have to max it out.

2.Use the card but don’t depend on it as if it were your income. For example, I would use my card to get my monthly shopping, food, clothing and anything else that I would get that month. Once the card payment was due I would then pay it all off. By paying it in full, stops interest being added on. This constant usage raised my credit score. However, if I maxed out the amount on the card or if my credit balance (how much you have spent) was a lot higher than the Available Credit (how much you have left on the card –in credit) it negatively impacted on the credit score. This is why it shouldn’t always be spent to the last penny.

3.Don’t just pay the minimum payment due. If you opt to pay back the minimum payment each month, it will take longer to clear the balance. This will only grow worse with interest.

Here’s an example. The Credit limit on the card is £100 and the interest is 2%. For the month of October, £95 is spent. The minimum payment is £5. If only £5 is paid, the credit balance is now £90 plus the 2% interest. So the new credit is £91.80.Hopefully, you can see that not only will it take longer to clear the credit balance, you will end up paying more than what you borrowed to even begin with.

I hope this has given you some clarifications and can aid you in making a smarter choice in your finances. If you have used a credit card, comment on this post what your thoughts are and any helpful tips that you have. If you are thinking of getting one did you find it useful?

See you in my next post!

P.S., Of course, I’m not leaving you without a quote for the week

“Always remember your focus determines Your Reality”

George Lucas