What is Short-Term Financing (+ 6 Options to Consider)

At a certain point in everyone’s life, they consider investing in what is perhaps the most extensive and important investment of their lives. This investment is made in buying a house, for which most people consider going the route of taking out a mortgage in order to pay for their house over an extended period of time rather than a one-time payment.

The thought of being stuck with monthly payments for a few decades can be overwhelming for most people. However, if you’re smart about your mortgage payments, it doesn’t have to be as scary as what most people perceive it to be. Here’s a list of factors you should consider if you’re a potential homeowner that will help you get over your mortgage-related anxiety.

1. Dedicate Time to Understand The Mortgage Application Process 

If you’re a first-time homebuyer, it’s understandable how this could be a very stressful process for you that might be causing a lot of anxiety.

A large part of why this happens is due to the fact that many buyers aren’t fully up to speed with all the steps involved in the process and are somewhat uninformed. Simply reading up about the step-by-step process can help clear any confusion or misconceptions so that you can figure out the best options available to you in your set of circumstances.

If the mortgage payments process is broken down into individual steps, it can prove to be quite helpful in understanding exactly what you are signing up for. This process can be divided and looked at separately in the following steps:

Self Analysis of Your Financial Situation

This is something that you’ll need to do before you start looking for a new house. This step will enable you to narrow down your search to options that you can realistically consider paying for.

When analyzing your financial situation, you will need to take stock of your credit situation, savings, debt, and budget. You will also need to arrange financial documentation for these items as proof to be attached along with your loan application. 

Mortgage Application Processing

Once you have successfully compiled all the supporting documents for your application, you will submit them to a potential lender for approval.

In some cases, you could even qualify for conditional approval, which is done through upfront underwriting. This would allow you to accurately ascertain what your budget looks like, and you can look for homes that fit this budget.

This will help you save quite a lot of time and effort as your search will be limited, and you won’t have to go through the heartbreak of finding your dream house only to later find out it exceeds your budget. 

Loan Risk Review

This part of the process comes after you have submitted your application for the loan, where an underwriter will assess the amount of risk that they will have to incur when they shell out the loan for you.

As mentioned above, there are certain instances where if you are seen to be an ideal candidate for the loan, your application could qualify for conditional approval at this stage.

Meeting Conditions for The Loan

If you have been given conditional approval, that means that you are qualified for the loan if you are able to meet certain conditions. These conditions need to be met before you can be given the loan. They usually include things like providing insurance proof and clearing any outstanding debts that you might have. 

The Settlement Process

The last part of loan processing is the closure or settlement stage where all the funds will be disbursed to all the involved parties and all the paperwork will be completed and signed. 

The above steps should give you a good idea as to the steps you’ll need to go through when you’re applying for a mortgage.

However, having a good understanding of the process doesn’t mean that your application is going to start filling itself out. For that, you’ll have to make a conscious effort and invest your time in making sure that you fill out the application correctly.

This isn’t a complicated process and once you know what you’re looking for, this should be a fairly simple process. 

2. Plan Out Your Next Move in Advance

Something you can do to greatly decrease the level of anxiety and stress when taking out a mortgage loan is to start planning ahead and map out your strategy well in advance.

When you are pressed for time and operating on thin time margins, the chances of you being stressed increase significantly. Having more time dedicated to planning and research can help you understand what type of mortgage will be ideal for you.

If you are from the United Kingdom and want to do some number crunching to determine the feasibility of your plans, a UK property calculator can really come in handy. Instead of making choices hastily and regretting them later, it’s best to spend some time in the planning stage and make sure that you are making an informed decision, one that you will not regret later.

3. Take Measures to Improve Your Credit Rating

Having an honest conversation with yourself regarding your credit score could be quite important when considering a mortgage. This is because any red flags on your credit history or score will make your life a lot more difficult when you’re trying to negotiate your way to a decent mortgage plan.

Rather than having to deal with the stress and anxiety associated with the problems you will face due to a less than ideal credit rating, it’s best if you take measures to fix them.

You will have to put your spending habits under the microscope and question yourself regarding the necessity of your expenses.

If you feel that you are making many unnecessary expenditures or buying a lot on credit, you will have to alter your buying behavior to minimize these non-critical expenses. Knowing that you’re spending more responsibly will not only increase your chances of getting a better mortgage deal but also reduce your stress levels as managing the mortgage payments with your reduced spending patterns will be relatively easier.

If, however, you spot a few things in your credit history that can’t be fixed anymore, don’t fret too much. Of course, a situation like this isn’t quite ideal, but this isn’t something that should be considered a deal-breaker. You will still be able to find a decent mortgage plan and being aware of your past mess up will only keep you more disciplined in the future. 

4. Outline What Your Budget Looks Like

Spending more than what you have is never a good idea. Especially not if what you’re buying is probably the most expensive purchase of your entire life.

To stay within the limit of what you can realistically spend on mortgage payments without compromising on other areas in your life, it’s very important to list down all your major expenses each month. Take a look at your fixed monthly expenditures such as the current rent on your residence and travel expenses etc.

Add to these a rough estimate of how much you tend to spend each month on variable expenses such as entertainment and dining out etc. Once you’ve got a good estimate for how much you spend each month, subtract this from your income, and you will arrive at the figure from which you can pay for your mortgage payments. 

Don’t forget to consider any target for savings that you want to achieve on a monthly basis and subtract that from your maximum allowed budget as well.

When choosing your mortgage plan, be sure that you can very comfortably afford to pay for it without being stressed about how to pay every single month. A simple way of doing this is to follow the 50/20/30 budgeting rule.

Fixed expenses like rent and mortgage payments should not account for more than 50% of your income, whereas savings need to be 20% and spending money should be 30%. If your mortgage payments fit in comfortably to accommodate for this rule, great; go for it!

5. Understanding Critical Documentation

Buying a house on a mortgage is a slightly more complicated transaction than your weekly grocery runs.

For obvious reasons, there’s a lot of documentation required at each step of this process to make sure that all involved parties are secure and have a record of the transaction.

Even having surface-level knowledge of what these documents mean and why they are needed can greatly help you in decreasing your anxiety and fear of mortgage payments. Here are the documents you’ll need to know about that you’ll have to familiarize yourself with.

Mortgage Loan Application

At first, this document may overwhelm you with its length but upon closer inspection, you will realize that it is a fairly simple document to understand.

Essentially what you’ll be needing the mortgage loan application form would be to log in details of your financial history and current situation along with the details of your eventual mortgage.

This document can also be used to get conditional approval on your application so that you’re able to get clarity and confirmation of a lot of the variables involved which you will need to keep in mind during your search for a home. 

Your Long-Term Credit Report

A lender will be very concerned with the borrower’s payback ability at the time of extending the loan. To ascertain this, a credit report is used to gauge your creditworthiness along with your ability and track record of paying back within a certain amount of time. It contains the details of your entire credit history.

Salary Slips For The Last 30 Days

Salary slips serve as proof that’s needed by the lender to determine whether or not you’re being truthful about your stated income or not. Providing your proof of income is absolutely critical as your application will not be processed without it. 

6. Complete Research & Explore All Options

Mortgages can sometimes be confusing and tricky due to the fact that you’re not just making one decision but a few during this process.

From selecting an actual house that you’d like to live in to choosing your lender and calculating your budget, there are a few important decisions to be made.

If you don’t explore all your options, even if you’re getting an excellent deal, you’ll be anxious that there might have been something better out there. If you’ve explored all your options, and you end up choosing a specific one from the ones available, you can be sure of the fact that you did your homework and are now making an informed choice.

7. Develop a Good Relationship With Your Lender

Choosing a lender that also considers your best interests as well is absolutely necessary.

If your lender doesn’t reaffirm that your purchase decision was a good one or is unsupportive in different matters related to the contract, it could lead to some friction. Having a frictionless and hassle-free experience with your lender is quite important in reducing mortgage-related anxiety as well.

Lenders are also interested in your well-being as your success will directly translate to more security for them and a higher chance of a safer payback.

This is why rather than thinking about your lender as an evil entity whose sole purpose is to leech money from you, you should consider the fact that they’ve essentially enabled you to purchase your own home which might have been otherwise impossible for you.

As mentioned earlier, buying a house for most people is one of the most important financial decisions that they will ever make in their entire life. However, there’s no reason why this should be met with any stress or anxiety.

If you follow the above-mentioned tips and make sure you do your research to remain as informed as possible, there’s absolutely no reason why you should stress out about the next stage in your life that could be the start of something amazing.

Woman outside holding a small model of a house, smiling. Caption: Make your mortgage payments stress free
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