Once an IVA has finished is it possible to get a mortgage , you’ll likely have many unanswered questions in regards to mortgages and the entire financial side of home buying.
You needn’t worry however, as we’re here to talk you through the things you need to know and take away some of the stress that comes with misunderstanding the property ladder and how to start climbing it.
Getting a mortgage after an IV
IVA simply stands for Individual Involuntary Arrangement. IVAs are legally binding agreements between individuals and their creditors, which are created to ensure the owed money is paid back within a certain amount of time. Insolvency practitioners are responsible for creating IVAs, and they will normally be either qualified accountants or solicitors. Any and all IVAs must be approved by a court and after, recorded on the Insolvency Register.
Your financial situation will be assessed by an insolvency practitioner in order to help them arrange the details of the IVA. Beyond this assessment, the practitioner will then produce a payment structure that suits your affordability. The practitioner will also take into mind your creditors and what they’re hopeful of achieving from the said IVA. Most IVAs will last around five years and in this time insolvency practitioners will normally communicate with creditors on your behalf during this period of time.
Once your creditors have accepted the terms and conditions of the IVA, any additional chargers will be frozen. Creditors won’t be able to demand any payments from you while ever the IVA is in effect, either. The agreed upon debt is then paid monthly to the insolvency practitioner, who make all payments to your creditors on your behalf, whilst deducting their own charges and fees.
Any remaining debt that’s still owed after the period of time the IVA is set to last has passed, will normally be completely written off. Once the IVA reaches its completion, you will no longer owe any money to creditors. Also, when the time limit is reached, the IVA will be removed from your record and should therefore no longer hold you back from the likes of lenders, etc. any longer.
Can I get a mortgage after an IVA?
It is in fact very possible to get a mortgage after an IVA. You’ll more than likely not be considered for the lowest mortgage rates, as some people will, though you could easily find yourself looking at a competitive price point.
You should be aware that obtaining a mortgage after an IVA will be no easy accomplishment. If you’re hoping to submit an application to a high street lender, you should probably just forget about it and rethink your options. It can be difficult enough as it is to receive financial aid from high street lenders in the modern world, and this will only become harder for those with an IVA.
Your credit file will be the biggest problem for you here, and the fact that your IVA will remain present on it. Lenders will be searching through your credit report to ensure you’re a reliable customer for them to lend money to and an IVA will be a huge red flag within this area. You’ll be considered ‘high risk’ by lenders that receive your credit report when considering your application with them. Because of these reasons having an IVA can heavily influence a lender’s decision on whether to approve you for a mortgage.
Fear not however, as seeking out an alternative lender can be a saving grace to those with an IVA. Certain specialist lenders can offer mortgages to borrowers who are in an active IVA or have had a past IVA. Though, even if you are indeed approved a mortgage, as previously mentioned, you can expect to pay higher rates and not receive all the benefits a customer without an IVA might, etc.
How much money can I borrow for a mortgage?
Before you can start searching for your dream house, you’ll need to know exactly how much you’ll be able to borrow in order to set your price point at an appropriate level. There are many things that can factor into this, so we’ll walk you through everything you need to know about funding and buying your first home.
What is a mortgage?
When it comes to actually buying homes, the vast majority of people will not possess the entire value of a property themselves, and will therefore need a helping hand in order to purchase it. A mortgage works as a loan which allows people who don’t have the full amount of a property in their bank accounts, to get onto the housing ladder.
Mortgages are a loan that helps to cover the remaining cost of a house after a homebuyer puts a deposit payment down. You should be aware that this is a type of secured funding against the house, so if you ever make late mortgage repayments, your house will be at risk.
How much can I borrow for a mortgage?
The amount you can borrow for a mortgage is dependant on numerous factors. The financial crisis in 2008 brought with it a lot of new regulations, this was to ensure a higher level of responsibility would be adhered to when it comes to lending.
The four key factors that will be considered are as follows:
- Your income – as well as the other applicants if you’re applying for a joint mortgage
- Deposit – the bigger your deposit, the more lenders are likely to loan to you
- Your credit score – if you have a good credit score, lenders will see you as more reliable and therefore be more likely to lend to you
- Affordability – the lender will need to know you comfortably afford the property you’re looking at purchasing
What effect does a deposit have on a mortgage?
The larger the deposit is that you put down on a property, the less you will need to borrow in order to achieve the full amount. If you only have a low deposit, lenders will set heightened interest rates to combat the perceived risk that lenders claim come with them.
Loan to value (LTV) is a term you should familiarise yourself with as it’ll be important throughout the mortgage proceedings. LTV is the amount you borrow against the property’s total price, after the deduction of your deposit payment.
More competitive deals will likely come your way much easier if you have a lower LTV. This is because the lower the LTV, the less you’ll ultimately need to borrow of the total property price.
If you can afford to put down a hefty deposit amount, you’ll be in even better luck. You’ll now mostly see a recommended 10% deposit, though you’ll need to be looking closer to the 25% margin to start seeing better mortgage rates and mortgage deals. If you’re fortunate enough to be able to put down a deposit of 40% or more you’ll start seeing the very best deals a lender can offer.
A deposit of 5% is likely the smallest option you’ll have available to you, though many people are now heading down this route to give them a jump start on the property ladder. The more you can delay getting a mortgage while you save up to put down a bigger deposit, the better off you’ll likely be in the long run.
What about the credit checks?
A credit check will be carried out by mortgage lenders when you’re applying for a mortgage. This will happen during the agreement in principle phase, which is a non-binding agreement that confirms they’ll be willing to lend you money under the relevant criteria of a mortgage deal. This is an essential part of the process because without the agreement you have no confirmation that you’ll receive the funds you need to purchase your new property.
Because of the checks that will be made, you’ll need to ensure you have a healthy credit score before you start applying for a mortgage. There are some helpful, proven ways of keeping your credit score in a positive state, so by following these guidelines you should be fine to apply for a mortgage when you need to.
Ways to keep your credit score healthy:
- Use a credit card little and often – by having and using a credit card you’ll be building up your credit score, so don’t go buying things you can’t afford to pay off.
- Keep your credit utilisation low – keeping this below 30% of your limit shows lenders you know how to use credit responsibly and sensibly.
- Fix any mistakes on credit reports – if there’s something bad on your credit report that isn’t right, get it fixed before lenders see it and disqualify you for any loans you may need in the future.
- Don’t make multiple credit applications around the same time – doing this can impact negatively on your credit score, so avoid at all costs.
- Use an eligibility checker before applying for credit – this way you won’t be rejected for credit when you thought you wouldn’t be and therefore won’t receive the negative impact of being so on your credit report.
- Start paying some bills in your name – this is a great way to build up a credit score, so get your phone bill in your name and start from there.
- Pay your bills on time – speaking of bills, it’ll only be useful in terms of your credit score if you’re ensuring that you pay them all on time.
Do I just take the maximum mortgage amount I’m offered?
When you’re purchasing you first home, the excitement of getting a nice place of your own may defer you from some of the important factors surrounding it. You shouldn’t solely consider how much you can borrow, but also how much you can afford to spend. You don’t want your whole life to revolve around paying for your house and completely lose your freedom to do other things with your cash.
It’s advised that you spend an absolute maximum limit of 50% of your income on mortgage repayments, though a lessened amount would make living much easier obviously. You don’t want to become ‘house poor’ and have very little disposable income to enjoy your life the way you’ll want to.
Keeping your monthly repayments closer to 30% of your salary will award you more freedom and generally more funds to use as you wish on things other than bills. This is also important because interest rates can rise up at any given moment, so ensuring you’ll have the extra cash to cover such events is an important consideration to make when applying for a mortgage.
If you’ll only be able to make your mortgage repayments at their current rate and won’t be able to afford them if they rise from, 4% – 6% for example, you’ll land yourself in a large amount of financial trouble and potentially even risk losing your house
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