How to Get a Mortgage with a Small Deposit
Before proceeding to the information about how to get a mortgage with small deposit, it is important to understand what a mortgage with a small deposit and a mortgage with no deposit means.
Mortgage with a small deposit
A mortgage with a small deposit is introduced to help the people who have an insufficient amount for a mortgage deposit.
In other words, you can say a small amount for a deposit but are willing to take part in and proceed with the steps of buying a house.
If a person has a small amount of savings which is equal to almost 10% or nearly 15% of the total cost of their chosen house, then a mortgage with a low deposit is their way to go.
This is a convenient and easily accessible way to buy a house with such a small deposit amount. Similarly, there is another option of buying a house by paying through a small deposit mortgage of your old equity if you have a previous home.
This costs 15% or less than 15%, there you need a low deposit mortgage to be paid when you remortgage your previous property. Currently, there are different lenders who ask for a deposit of at least 10% of the owner’s equity in exchange for a mortgage.
Mortgage with no deposit
A no deposit mortgage works as same as a mortgage with a small deposit does.
However the only difference between both deposit systems is that a no deposit mortgage has a loan to value ratio of 100% which means the buyer has to pay 0% of the loan amount for the house they are looking to buy and this will be adjusted though the mortgage rate.
Since this case is a bit critical and very rare to find nowadays therefore there are very few lenders who are up for this kind of agreement.
How does a mortgage with low deposit and no deposit work?
The mortgage with a low deposit works as a total percentage value of the buyer’s equity which is paid by the buyer along with a small amount of savings that are made for a deposit. The amount left is adjusted through the mortgage process.
Let’s take a look at an example here.
There is a person who is looking to buy a house for £150,000, for which they have deposited 15% of the total amount which is equal to £22,500. The rest of the amount will be covered through the mortgage which is equal to £127,500.
So the loan to value ratio applied on this mortgage will be 85% as the mortgage covers the 85% of the total value of the house.
Whereas in the no deposit mortgage system, there is a loan to value ratio of 100% which means that full amount has to be paid through the mortgage.
How can a person get a low deposit mortgage or even a no deposit mortgage?
There are numerous ways of getting a mortgage with a small deposit while a mortgage with no deposit is more limited in ways you can find one. Since a person is getting a mortgage with such a low deposit, the lenders want a secure way to avoid any conflict or mishap with the payments.
Below are a few of the common ways to get a mortgage with a low deposit or even no deposit.
With the help of family members or friends
In this case if a person has a friend or a family member who is all ready to help them in getting a mortgage, they can fill out the agreement together. In this case the family member or friend would be named as the guarantor on the mortgage.
To be the guarantor of the mortgage, this particular friend or family member has to agree to the terms and conditions which says that they will make any repayments in case they are missed by the responsible person.
In such case, they can utilize their own house for the purpose of security so that the lender will have security on the guarantor’s home. This means they can claim the payment amount from them.
Other than this, they can use their savings to pay a lump sum amount of the property through their savings to the company as a case of security.
In this case, the guarantor will not be able to retrieve the money unless a specific amount of payments has been bade by the property’s owner.
Loan offered by the developer
This is one of the best ways to get a mortgage with a low deposit. Occasionally the building developers are interested in paying portions of the loan to a person who purchases a new house from their developing company. This jump-starts the business of the developing company and eases the financial burden of the homeowner, a win-win.
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