How to buy mortgages

Buying a home can be the largest purchase many of us make in our lifetime and, while exciting, can also be stressful. With so many factors to consider and so many online sources available, it can be difficult to know where to start. We know that buying a house requires a lot of time, effort, and research, but knowing what steps to take can make the home buying process easier.

Check out these 10 steps to buying a home so that you can make an informed decision and get started today:

Step 1: Find out your credit score

First, check your credit score with the three main credit bureaus: Equifax, Experian, and TransUnion. The higher your credit score is, the better chance you’ll have at qualifying for a lower interest rate. This can significantly lower your monthly mortgage payments, so if your credit score could use some help, consider delaying your purchase until you’ve improved your credit.

Step 2: Determine how much house you can afford

You’ll also need to determine how much you can afford to spend on monthly mortgage payments.

It’s also important to account for additional expenses, such as moving costs. You’ll also want to consider how the new location may affect your commute and how much you typi­cally spend on gas each month. While these may seem like small costs compared to buying your first home, they’ll add up over time.

Step 3: Save cash for a down payment

While some loan types may require as little as 3% down, having cash for a down payment can significantly lower your monthly payments. Financial experts generally recommend putting at least 20% down—anything lower means you’ll be required to purchase private mortgage insurance (PMI). PMI functions as a safety net for your lender in case you fail to make your monthly mortgage payments. The yearly cost of PMI is about 1% of your outstanding loan balance and is added to your monthly mortgage payment.

Step 4: Budget for surprise expenses

After you’ve determined your ideal monthly mortgage payments, you still need to factor hidden costs into your budget. Making the move to homeownership leads to new expenses that you may not have considered. Some of these include insurance, property taxes, home inspection fees, closing costs, renovations, and maintenance fees. These unexpected costs can quickly add up.

Step 5: Get pre-qualified for a mortgage loan

Before you start looking at prospective homes, you need to know how much you can afford to spend. A good way to do this is to get pre-qualified for a mortgage loan. Your mortgage banker will be able to review your financial situation, such as your income, investments, and any savings you may have, and tell you how much you’ll likely be able to borrow.
Once you’re pre-qualified for a mortgage loan, you’ll know exactly how much house you can afford. Not only will getting pre-qualified help you stand out to potential sellers, but it’ll help you narrow down your home search. Additionally, when you start working with a real estate agent, you’ll have these initial steps taken care of—and you’ll know the price range you need to stay in.

Step 6: Find the right real estate agent

Finding a great real estate agent is a crucial part of your home buying experience. While there are many real estate agents out there, you’ll need to find one that’s knowledgeable about the specific area you’re hoping to move to. A quality real estate agent will be reputable, informed and help you at every step of the process.
Teaming up with a real estate agent who has your goals in mind will help make the home buying process easier. Make sure to be thorough when discussing your needs. Whatever is most important to you, be sure to communicate to your real estate agent.

Step 7: Narrow down your search

Now that you’ve narrowed down your price range, are pre-qualified for your mortgage loan, and have found a real estate agent, you’re ready to start shopping for your dream home. Your real estate agent will be able to help you narrow your search to homes that meet your budget and location requirements.
While your real estate agent will likely already be familiar with the community, it doesn’t hurt to do a little digging on your own.

It’s important to check out your future neighborhood and make a note of things

  • Is this neighborhood clean?
  • Is there a lot of traffic on your street?
  • Is there ample parking space?

It’s also important to make sure your new home will be near places you and your family frequent, such as work, schools, public transportation, shopping centers, and parks, to name a few.

Step 8: Make an offer and be prepared to renegotiate

It’s okay to take as much time as you need when searching for your new home. After all, you want to be sure the house you’ve chosen is right for your unique needs. When you’ve settled on a home and are ready to move forward, your next step is making an offer. Your real estate agent will help by assessing the value of comparable homes in the neighborhood. Then, you and your real estate agent will determine an amount that reflects the value of the home and present your offer to the seller.
Once you and the seller reach an agreement, the house will go into escrow. During this time, all of the remaining steps in the home buying process will have to be completed.

Step 9: Get a home inspection and appraisal

Home Inspection

Now that you have made an offer on a home, you’ll want to get a home inspection. While you aren’t required to have one done, it’s highly recommended. When searching for a home inspector, seek out recommendations from friends or family, or ask your real estate agent for a list of home inspectors they’ve worked with in the past. Getting your home inspection taken care of within the contingency period of your offer allows you to renegotiate based on the findings of the inspection.

Home Appraisal

The next step in the home buying process is to get a home appraisal. Your lender will arrange for an appraiser to verify the value of the home. The appraiser isn’t associated with the lender or agent, which means you can trust them to provide an unbiased estimation of your home’s value. Knowing your home’s overall value helps your lender confirm your home has been valued appropriately. Additionally, this means you’ll have a professional assessment documenting how much your home is worth.

Step 10: The closing process

Your home has been inspected and appraised, now you’re ready to close. This process can vary slightly depending on which state you’re in, but you can likely expect additional paperwork and closing fees. Closing costs may include things like attorney fees, title insurance, or property transfer taxes. Be sure to review your closing costs with your real estate agent.

Congratulations — You’re officially a homeowner

You’ve made your way through what may have seemed like an endless amount of paperwork, inspections, and phone calls, but you made it — congratulations! You’re officially a homeowner, and you now have a place to call your own. All that’s left to do is to take care of any necessary renovations and start unpacking. While the home buying process can seem overwhelming at first, once you know what’s expected, the whole process goes a lot smoother.

If you’ve been affected financially by the COVID-19 pandemic and you own a single-family home with a federally backed or FHA-insured mortgage, you can request mortgage forbearance, a pause in making mortgage payments.

Deadlines for Federally Backed Mortgage Forbearance and Foreclosures

Forbearance

For loans backed by HUD/FHA, USDA, VA, Fannie Mae, and Freddie Mac, you can request an initial forbearance through September 30, 2021.

Foreclosure

Lenders could not foreclose on loans backed by HUD/FHA, USDA, VA, Fannie Mae, or Freddie Mac until after July 31, 2021.

What Your Loan Servicer Must Do If You Request Forbearance

If you're having trouble making payments on your federally backed mortgage because of the COVID-19 pandemic, contact your loan servicer before September 30, 2021. Your loan servicer must:

Defer or reduce your payments for 180 days if you contact them to make arrangements

Give you another 180 days of mortgage relief at your request

Offer options for how you can make up the deferred or reduced payments. They will discuss these options with you at the end of your forbearance period.

Find Your Loan Servicer

If you don't know whether your mortgage is federally backed, see a list of federal agencies that provide or insure mortgages. You can also check the Fannie Mae loan lookup and the Freddie Mac loan lookup to see if either one owns or backs your mortgage. Together, Fannie Mae and Freddie Mac own nearly half of all mortgages in the U.S.

Mortgage Refinancing

Refinancing your mortgage allows you to pay off your existing mortgage and take out a new mortgage on new terms. You may want to refinance your mortgage to take advantage of lower interest rates, to change your type of mortgage, or for other reasons.

These resources will help you learn more about refinancing your mortgage:

    is your first place to look for an introduction to mortgage refinancing, including useful worksheets, a glossary of terms used in the industry, and more to help you decide if mortgage refinancing is right for you.
  • What type of mortgage should you choose? Get information about mortgage types and the settlement process in Shopping for Your Home Loan: Settlement Cost Booklet.
  • Veterans may be eligible for refinancing their VA mortgage using an Interest Rate Reduction Refinancing Loan (IRRRL).

Reverse Mortgages

If you’re at least 62 years old, a reverse mortgage can let you turn part of the equity in your home into cash. You will not have to sell the home or take on additional monthly bills. The reverse mortgage does not have to be paid back as long as you live in your home. You only repay the loan when you sell your home or permanently leave it. Read more information about reverse mortgages.

Types of Reverse Mortgages

  • Federally Insured Reverse Mortgages – Known as Home Equity Conversion Mortgages (HECM)
  • Proprietary Reverse Mortgages
  • Single Purpose Reverse Mortgages

Be sure to watch for aggressive lending practices, advertisements that refer to the loan as "free money," or those that fail to disclose fees or terms of the loan.

When finding a lender remember:

  • Do not respond to unsolicited advertisements
  • Be suspicious of anyone claiming that you can own a home with no down payment
  • Seek out your own reverse mortgage counselor
  • Never sign anything you do not fully understand
  • Make sure the loan is federally insured

Reporting Fraud or Abuse

If you suspect fraud or abuse, let the counselor, lender, or loan servicer know. You may also want to file a complaint with:

If you have questions, contact your local HUD Homeownership Center for advice.

FHA Loans and HUD Homes

If you’re a homebuyer, the Department of Housing and Urban Development (HUD) has two programs that may help make the process more affordable.

FHA Loans

The Federal Housing Administration (FHA) manages the FHA loans program. This may be a good mortgage choice if you’re a first-time buyer because the requirements are not as strict as for other loans. The down payment and closing costs are low.

Am I eligible?

  • You must qualify for a loan with an FHA-approved lender. In general, your credit score doesn't need to be high.
  • The price of the home you want to insure must be within the loan limit for an FHA home in its location.

How Do I Apply?

The FHA doesn't lend money to people. It insures mortgage loans from FHA-approved lenders against default. To apply for an FHA-insured loan, you will need to use an FHA-approved lender. Search for an FHA-approved lender here.

How do I complain?

If you have a complaint about an FHA loan program, contact the FHA Resource Center.

HUD Homes

When homeowners default on their FHA loan, HUD takes ownership of the property, because HUD oversees the FHA loan program. These properties are called either HUD homes or HUD real estate owned (REO) property.

Am I eligible?

Your qualifications to buy a HUD home depend on your credit score, ability to get a mortgage, and the amount of your cash down payment. You can also use an FHA-insured mortgage to buy a HUD home.

How do I apply?

Use the HUDHomestore to find listings of HUD real estate owned (REO) properties for sale. Click on the agent tab to find contact information to learn more about the property.

Where do I call for extra help?

If you have a question or need more information about FHA loans or HUD homes, you can:

Email or call the FHA Resource Center

Do you have a question?

Ask a real person any government-related question for free. They’ll get you the answer or let you know where to find it.

Investing in mortgage notes is an appealing alternative to purchasing properties outright and becoming a landlord. However, unlike a hard real estate purchase, you don’t own the property when you secure a mortgage note. Instead, you become the borrower’s (home purchaser’s) new creditor by taking the bank’s place in the transaction.

If you are looking for passive income without purchasing a physical property, mortgage notes can be an ideal real estate investment. You will receive a monthly income in the form of principal and interest repayments on the underlying mortgage. Depending on your long-term strategy, you have the option to hold the note until maturity or resell it in the secondary market.

What is a mortgage note?

A mortgage note is simply a promissory note used exclusively in real estate transactions. As the name suggests, it represents the borrower’s promise to the note holder (lender) that they will repay the obligation. These mortgage notes are typically not listed in the public record but are nonetheless legally binding documents.

Once the borrower signs the required documentation and provides the note, the lender holds the paper until the borrower makes the final loan repayment. However, while the loan remains outstanding, the lender can sell the note on the secondary market.

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Mortgage notes can be structured in several ways but are usually broken down into the following categories:

• Secured: This means an asset of some value collateralizes the loan. In the case of a mortgage note, the asset is the property. If a borrower is unable to fulfill their repayment obligations, the note holder acquires the property.

• Unsecured: There is no collateral posted. These notes typically come at a cheaper price (higher yield) because of the higher inherent risk.

• Private loan: This is a note agreed to between the borrower and a private investor. A borrower typically chooses a private investor in lieu of a traditional loan when they have a low credit score or history of non-payments. In these cases, private lenders will ask for a higher interest rate for taking on the added risk.

• Institutional loan: This is a standard loan made by a financial institution such as a bank or credit union.

Understand the process of buying a mortgage note.

Once you are aware of how a mortgage note works, you will need to learn how to buy a mortgage note from the bank. Follow this process below and keep in mind some key tips to be successful.

1. Determine your objective.

Before approaching a bank, you should have a real estate investment plan already in place. First, you need to determine your risk tolerance and whether you plan on flipping or holding onto the mortgage note.

If you are looking for a steady payment stream that provides a high degree of income certainty, then you will likely look for stable and low-risk mortgage notes. If your goal is to make a big splash via a one-time trade and have the necessary risk appetite, you might consider a high-risk note trading at a significant discount.

2. Find a note to buy.

Two major drawbacks of exploring the secondary market for private sellers are the pricing inefficiencies and lack of regulation. These factors often create a seller’s market. Even the most experienced note brokers can spend countless hours searching online sites for attractive deals from private sellers.

This is where banks come in handy. Banks’ lending capacities are often hamstrung by the amount of perceived “bad debt” that they hold on their books. If they want to issue more mortgages, one way to increase capacity is to unload mortgage notes.

However, keep in mind that while a bank views mortgage notes as a risky asset, it does not necessarily mean the borrower has stopped making repayments. The particular risk profile might require such a designation independent of the borrower’s performance. Either way, banks often view selling the debt as an appropriate business decision, and this creates more favorable secondary market opportunities for note purchasers.

3. Review the “tape.”

A mortgage note “tape” is a datasheet that discloses some of the information necessary to evaluate the mortgage note’s investment value. The tape should be one of the first resources used in the decision-making process.

4. Skip customer service if possible.

You can save yourself time (and headaches) if you can position yourself directly in front of the bank’s decision-makers. As is the case with any products or services company, there will be barriers to entry for a new customer.

Not everyone who walks through the door, picks up the phone or submits an online appointment request is that interested in purchasing something. That is why companies have a customer service process in place — to reserve a decision-maker’s time for those looking to conduct real business.

That is the advantage of having a real estate investment plan. The company knows you’re serious, and more importantly, the decision-maker knows you will not be wasting their time.

5. Determine your bid price.

Both bid and offer prices can demonstrate inconsistencies, and the final price is often subjective.

There are objective factors to incorporate into a price calculation. They can include (but are not limited to) the borrower’s credit score, the borrower’s performance, the remaining number of payments, the loan’s interest rate, the loan type and the loan’s final maturity date (when the loan is repaid in full).

Get the rewards of a rental property without the fuss.

Mortgage notes produce a consistent income stream without the daily nuisances of landlord responsibility. It is an ideal way to invest in real estate without a ton of time and effort.

Banks will typically be your most reliable source because they are usually looking to unload inventory. Be sure you know how to buy a mortgage note from the bank, however, before approaching an institution willing to sell.

The information provided here is not investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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Maybe you’ve been considering homeownership for a while, or perhaps you haven’t given much thought to buying at all. Either way, it’s important to know when you’re financially ready to buy a house.

Lenders want you to be financially stable before applying for a home mortgage. But do you know what financial stability looks like? Once you understand what you need to have in place, homeownership may be more realistic than you thought. Here are five key points to think about when considering whether you’re ready to buy your first home.

1. You have dependable income

Regular, dependable income is critical to qualifying for a mortgage. A home is a long-term investment, so lenders take a close look at your income and employment history.

Income that doesn’t support a mortgage payment can hurt your chances to qualify for a mortgage. Frequent job changes suggest instability and can also prevent a lender from approving a home loan. If you’re new to working and still aren’t earning enough, you might need to wait before pursuing homeownership.

If you’re not sure if you earn enough to make monthly mortgage payments, use a mortgage calculator to work up some estimates.

2. Your debt-to-income ratio is low

Lenders look at your debt and your income to determine if you’ll be able to manage your monthly mortgage payments without issues. Your debt-to-income ratio (DTI) is the percentage of your monthly debt compared to your monthly gross income. Credit card payments and loan payments and the payments on your new home are examples of the debts lenders include in your DTI calculations.

Lenders are concerned about the relationship between your income and how much you owe creditors. Your DTI should ideally be below 40% when you include your proposed mortgage payment. Some lenders have stricter requirements. The lower your debt in comparison to your income, the better chance you have of qualifying for a mortgage.

If you have limited debt compared to your income, you’ve fulfilled one crucial requirement for being ready to buy a house. If you’re still working on paying off debts like student loans or credit card payments, it may be worth focusing on reducing your DTI before considering buying a home.

3. You have a good credit score

Your credit score is a three-digit number that represents your creditworthiness. Credit scores typically range from 350 to 850 with higher numbers representing better credit. Your credit score is calculated with information from your credit report, including payment history, debt and the length of your credit history.

Having a good credit score is a key piece to being financially stable enough to buy a home. Also, those with high credit scores typically get better terms for their home loan, which can save thousands of dollars over the life of a mortgage. Having an excellent credit score puts you in a great position to become a homeowner.

If you have poor or fair credit, you need to evaluate your credit score and may need to work on improving it before you’re ready to buy a house. Look for items that might be negatively impacting your score, such as too many hard credit inquiries, too short of credit history, late payments and using too much of your available credit.

If you have a low credit score, you’ll have difficulty qualifying for a mortgage. Some affordable home lending products, FHA loans and VA loans may have lower credit score requirements than conventional mortgages, which could help you qualify for a loan even with less-than-perfect credit.

4. You have enough saved for a down payment

A down payment is an initial partial payment you make when you purchase a house. The larger the down payment, the more likely you may be approved for a mortgage.

If you don’t have enough available for a large down payment, you might be able to be gifted money to put towards it. If a large down payment still sounds steep, you might have other options. Speak to your lender about state and local homebuyer assistance programs that subsidize a portion of the required down payment. Also, look into lower down payment products such as FHA or some Conventional loans that may offer less than 5% down payment options in some cases.

5. You can cover the additional costs of buying a home

When you think about buying a home, many only think about their down payment and monthly mortgage payments. But buying a home carries additional costs you need to factor into your budget. Some of these costs are one-time expenses that you won’t have to think about again, while others need to be paid regularly.

The most common home buying costs you need to prepare for include:

  • Closing costs. You pay these costs when you close on your home. Common closing costs include fees for the appraisal, inspection, title search and a credit check. Your lender will give you an estimate of closing costs soon after you apply for a mortgage. To reduce closing costs, you may be able to negotiate to have the seller pay some or all of them.
  • Private mortgage insurance (PMI). Private mortgage insurance is a monthly expense that protects your lender if you default on your loan. Having to pay PMI depends on the amount of your down payment. Typically, if you put 20% or more down, you don’t need to pay PMI.
  • Property taxes. When you close on a new house, you typically need to pay property taxes. This amount is from the date you close through the end of the tax year. Most lenders roll your property taxes into your monthly mortgage payment and hold your money in escrow until it’s time to pay property taxes to the county where you live.
  • Homeowners Insurance. Most lenders require you to have an insurance policy that protects your property against loss from things like theft and natural disasters. Typically, your annual premium is spread out over 12 months and included as part of your monthly mortgage payment. Similar to property taxes, your lender then pays your annual insurance premium on your behalf using the funds held in your escrow account.
  • Homeowners Association fees. Houses located in specific neighborhoods or gated communities sometimes have homeowner’s associations (HOA). Almost all condominiums and townhouses have HOAs. When you belong to an HOA, you pay fees for the services and amenities the association provides. The amount and frequency of HOA payments varies.

6. You have savings to cover maintenance and repairs

Owning a home means you’ll have to maintain your property. While you may have enough to purchase a home, you’ll need to make sure you can also cover the costs of owning one. Many realtors and insurance companies recommend following the one-percent rule. Tuck away one percent of the value of the home you intend to buy each year to cover maintenance and unexpected repairs.

Am I ready to buy a house?

Ultimately, your lender will use your income level, employment history, debt-to-income ratio, creditworthiness and down payment amount to evaluate how much house you can afford. Talk to a Home Lending Advisor for help understanding how to become a homeowner or prequalify for a home mortgage.

A mortgage calculator is a smart first step to buying a home because it breaks down a home loan into monthly house payments, based on a property’s price, current interest rates, and other factors. This can help you figure out if a mortgage fits in your budget, and how much house you can afford comfortably.

The calculator also allows you to easily change certain variables, like where you want to live and what type of loan you get. Plug in different numbers and scenarios, and you can see how your decisions can affect what you’ll pay for a home.

What is a mortgage?

A mortgage is a loan to help you cover the cost of buying a home. Mortgages are a crucial component of home buying for most people; they help make this expensive purchase possible by having a large financial institution like a bank or lender loan home buyers the money.

Once you have a loan, you pay it back in small increments every month over the span of years or even decades. It’s essentially a long, life-changing IOU that helps many Americans bring the dream of homeownership within reach.

What costs are included in a mortgage payment?

A mortgage payment typically consists of four components, often referred to as PITI: principal, interest, taxes, and insurance.

Principal:This is the total amount of money you borrow from a lender. A portion of your monthly mortgage payment will pay down this balance.

Taxes:Property taxes—what you pay the government for services such as public roadways and schools—are often included in mortgage payments. You can typically find an estimate of the property taxes you can expect to pay on real estate listings. Here’s more on how to calculate property taxes.

Insurance:Most mortgage lenders will require you to purchase home insurance to protect your property from damage, theft, and other accidents.

In addition to these costs, your house payment might also include these expenses:

HOA fees:If your home is part of a homeowners association, you may be required to pay a fee for maintenance or other services the HOA provides.

Mortgage insurance:If your down payment is less than 20% of the cost of your house, many lenders will require you to pay an additional fee called private mortgage insurance, or PMI.

How do mortgage lenders determine how much home you can afford?

When you apply for a mortgage to buy a home, lenders will closely review your finances, asking you to share bank statements, pay stubs, and other documents. Here are the main things they review to determine how much you can borrow:

Your income:How much money you bring in—from work, investments, and other sources—is one of the main factors that will determine what size mortgage you can get. Lenders may check not only your income for the current year, but also for past years to see how steady your income has been.

Debt:This is the total amount you owe to credit cards, car payments, child support, college loans, and other monthly debts. Lenders look closely at applicants who owe a large amount of debt, since it means there will be less funds to put toward a mortgage payment, even if their income is substantial.

Lenders will compare your income and debt in a figure known as your debt-to-income ratio. Your debt-to-income (DTI) ratio is the percentage of gross income (before taxes are taken out) that goes toward your debt.

To calculate your DTI ratio, divide your ongoing monthly debt payments by your monthly income. As a general rule, to qualify for a mortgage, your DTI ratio should not exceed 36% of your gross monthly income.

Lenders will also review other aspects of your finances, including the following:

Credit score:Also called a FICO score, a credit score is a numerical rating summing up how well you’ve paid back past debts. It’s based on whether you’ve paid your credit card bills on time, how much of your total credit limit you’re using, the length of your credit history, and other factors. A credit score can range from 300 to 850; generally a high score means you’ll have little trouble getting a home loan with great terms and interest rates.

For an instant estimate of what you can afford to pay for a house, you can plug your income, down payment, home location, and other information into a home affordability calculator.

Many or all of the products here are from our partners. We may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

How to buy mortgages

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Younger home buyers have stiff competition in today's housing market.

Today’s housing market is a really tough one to navigate. There aren’t enough homes available for sale to meet buyer demand, so bidding wars are becoming all the more common as people duke it out for limited properties.

Not surprisingly, millennials remain interested in buying homes, reports Zillow. But they’re facing increasing competition from a surprising source — baby boomers. In fact, Zillow says younger buyers now make up a smaller share of the real estate market than in previous years, which suggests that these buyers are being crowded out by repeat buyers, including boomers.

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Why do baby boomers have an edge in the housing market?

Many millennial home buyers are also first-time buyers, which means they don’t have the same financial resources at their disposal as older buyers.

Boomers, for example, are more likely to already be homeowners and may be able to tap their home equity to buy additional homes. Millennials, by contrast, may be reliant on the money they’ve scraped together in savings for a down payment.

All told, the share of recent home buyers between the ages of 18 and 39 fell 13% between 2009 and 2019. At the same time, the share of recent buyers who are 60 and older rose 47% during that same time frame.

How millennial buyers can increase their chances of success

Baby boomers might have an edge over their younger counterparts due to being more financially stable or having home equity already that they can use to their advantage. But that doesn’t mean millennials can’t increase their chances of success in today’s tight housing market.

For one thing, millennials can look at up-and-coming neighborhoods. Home prices tend to be more affordable in transitional neighborhoods, and boomers may not have the same appetite for them.

Secondly, millennials may be more willing to go out and get side hustles than their older counterparts. That income boost could really help level the playing field. In today’s housing market, home prices are really inflated due to low supply and high demand. It takes a higher down payment than in previous years to qualify for a mortgage. But savvy millennials are in a great position to capitalize on the gig economy and put themselves in a stronger position to buy.

This isn’t to say that baby boomers can’t go out and get a side gig, too. But it’s more common to see younger workers uphold this practice.

Millennials were facing their share of challenges on the road to becoming homeowners before home prices started to soar. Many were grappling with high levels of debt that made taking on a mortgage even more difficult. Now, millennials are grappling with sky-high home prices, limited inventory, and older buyers as competition. But millennials are also a resilient and creative generation, and in time, they could grow to constitute a larger share of home buyers.

Also, as millennials become more established in their careers, their earnings could increase. That could open the door to many more future buying opportunities.

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Let to Buy mortgages can help you buy your next house when you haven’t got a buyer for your existing home. We look at the pros and cons, whether it’s right for you and steps you need to take.

How to buy mortgages

In an ideal world, you’d sell your property at asking price with no drama and then find your dream home and move in. Sadly, the world of property is far from ideal and you may well find that perfect property to move into long before you get a buyer for your home. One option when this happens is to let your current property out to tenants and take out a new “Let to Buy” mortgage to buy your next home.

What is Let to Buy?

If you have enough equity in your home, you remortgage and release some cash to put down a deposit on a new home. You then let out your current home and use the rental income to cover the mortgage on your existing home. This then allows you to get a mortgage for a new home, assuming you can cover the repayments with your salary and other sources of income.

Let to Buy is also a popular option with couples wanting to move in together, but each have their own property. In this case, you could both move into one of the properties and rent the other one out using a Let to Buy mortgage.

Not sure whether to sell up or rent out? Read our guide on when letting a property makes sense

Mortgages for Let to Buy

With Let to Buy you’ll essentially have two mortgages . You’ll need a Let to Buy deal for your current property and a standard residential mortgage for the property you want to buy.

With Let to Buy you’ll be able to release equity from your property by borrowing at a higher LTV. For example, if your home is worth £200,000 and your mortgage is currently £130,000 you can borrow £150,000 and use that extra £20,000 as a deposit on the new property.

You’ll then take out a standard residential mortgage with the same lender.

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How is Let to Buy different to Buy to Let?

Unlike Buy to Let mortgages which are taken out by people specifically looking for a property to let out (or to re-mortgage one they currently let out), Let to Buy mortgages are used when you live in a property and want to move elsewhere.

What is the lending criteria for Let to Buy mortgages?

Lending criteria will differ depending on which lender you’re with but most lenders will:

  • offer a maximum LTV of 75% (so you’ll need to have a decent amount of equity in the house)
  • have a maximum age at application of 70 (many are lower than this)
  • want to see evidence of an onward purchase

Furthermore, your current property can’t be listed for sale or be sold subject to contract.

Rental Potential

Since buy to let rules have changed, lenders now require landlords to be able to achieve a higher rent in relation to their mortgage repayments. You’ll need to find out how much rent you’ll be able to achieve on the property to ensure you can meet this. Our free online rent calculator gives you likely rental income from your property now

The best way to find out how much rent a property is likely to achieve is to speak to a letting agent. If you want to get a more accurate figure it’s worth telling the agent you are considering appointing them to manage the property and get them to give you an estimate on what they would set rent as. You should get quotes from at least three agents in order to get a good idea of what rent should be. Find out more about becoming an accidental landlord and what you need to be aware of with our helpful guide

Is Let to Buy a good idea?

Let to Buy can help to ease the pressure when you’re in a property chain. If you need to sell your property so that you can buy your next home it can be extremely stressful. Let to buy removes some of that stress by taking the time pressure off.

What are the downsides to Let to Buy?

  • There’s no getting around the fact you’ll be responsible for two mortgages and that can be worrying for some people.
  • You’ll be hit by the stamp duty surcharge (3% on top of the Stamp Duty band) when you buy a second property. To calculate exactly how much stamp duty you will need to pay, use our free stamp duty calculator . Although if you sell your first home within 36 months of completing on the purchase, HMRC will make a full refund.
  • Let to Buy rates are not as good as standard residential mortgages (because of the increased risk) so you may not get as good a rate as you expected.
  • And, of course, if you own two properties and house prices fall you’re hit twice as hard.

What are my other options?

If you need to move quickly and you’re struggling to sell your property one other option is to seek consent to let for your current property and move into rental accommodation. If you have a residential mortgage you are not able to rent out the property without the lender’s permission. While the obvious option is to remortgage onto a buy to let mortgage, it’s also possible to keep your residential mortgage but receive consent to let from your lender.

However, lenders do not have to agree to give consent to let and may impose a higher rate or fee.

Speak to a mortgage broker

Not all lenders are happy to lend on a Let to Buy basis and of those that will most will only deal with brokers, not direct with customers. It’s worth speaking to a mortgage broker regardless as this is a more complex situation than a standard mortgage application.

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How to buy mortgages

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Falling for these myths can mean missing out on becoming a homeowner.

If you’re financially prepared and make smart decisions, buying a home could be one of the greatest financial moves you make. Purchasing a home means you start building equity and benefiting from rising property values. In most cases, it increases your net worth over time as you acquire an asset with substantial value. It can also allow you to set down roots and put your stamp on your property.

Unfortunately, many people who want to buy a home put it off or don’t take action because they believe some common mortgage myths.

Here are three misconceptions about homeownership that it’s important to discard so you can make a more informed choice about purchasing a property.

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1. You have to have a 20% down payment

Some would-be home buyers delay their purchase or believe they can’t buy a home at all because they think they have to put down 20% to get a home loan.

A 20% down payment used to be standard — and it is still ideal in most situations if you can make it happen. A large down payment reduces the risk that you end up with a mortgage for more than the property is worth, and it gives you the broadest choice of lenders and options, which can help you get a better interest rate. With 20% down, you also don’t have to incur the cost of private mortgage insurance, which is usually required to protect lenders when a buyer has a smaller down payment.

But, it is far from required that you put down 20% to buy a home. In fact, most people who purchase properties have much less than this amount, and many lenders allow loans as low as 3% down — or permit borrowers to get loans with no down payment at all.

If you can save 20% in a reasonable time, great. But if that’s not feasible and you’re otherwise well prepared to buy, don’t let the lack of a down payment hold you back.

2. You need perfect credit

Some people interested in purchasing a home may be reluctant because they assume they need good or even perfect credit to land a competitive rate. While you should aim to improve your credit score to get the lowest-cost loan possible, those with negative marks on their credit reports don’t have to put off the dream of homeownership. They also don’t have to accept expensive subprime mortgage loans, which borrowers are right to shy away from.

There are a number of government-backed mortgage loans, including FHA, USDA, and VA loans, that are ideal for borrowers with imperfect credit scores. These loans are usually affordable — though they may have more upfront fees than conventional loans — and the credit score requirements are relaxed, so people with credit scores of even around 500 sometimes qualify to borrow.

3. You should wait for rock-bottom mortgage rates

Finally, some homeowners put off buying because they think they should wait for the lowest possible mortgage loan rate. Unfortunately, predicting when interest rates will drop is impossible. Borrowers can miss out on great buying opportunities at reasonable rates if they try to time a purchase perfectly.

Interest rates remain near historic lows right now, and borrowers who can afford a fixed-rate mortgage and are otherwise ready to buy shouldn’t get hung up on hoping for a rate drop, but instead should focus on shopping for the best loan and finding a property that’s right for them.

By learning the truth about these home-buying myths, you can aim to purchase a house when you are truly ready. Don’t be deterred by misconceptions that can needlessly keep you from owning property.

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