If you’re considering buying your first home, you may be wondering exactly what you need to do to ensure the process goes smoothly. There are a number of things you need to watch out for in order to ensure you have the best experience possible.
First, you need to understand how much you can afford. You need to work out what your budget is, and then have this backed up by a lender so you can determine how large of a mortgage you can have, and the type of mortgage which is best for you.
A mortgage is a loan which is attached to your house, and you’ll need to prove to the bank that you can afford the payments on this loan.
The bank will look at how much you earn each month, and since only a certain percentage of your earnings can be allocated towards your mortgage (even if you think it can be larger) they will decide how much you can afford in repayments.
When it comes to interest rates, these will depend on what the economy is doing, and the current state of the housing market. The interest rate is also going to depend on your LTV, which is the loan-to-borrow, and the percentage of how much the bank owns of your property, and how much you’ve paid off. This is why it’s a good idea to save as much for a deposit as you can. The less money you’ve paid for your property and the higher your LTV, the higher interest rate you’ll be paying since it’s a risker lend for the bank.
The average first time buyer paid a deposit of 17% in 2014, which was an average of £29,218. One of the worst things you can do is to take a mortgage larger than you can afford. This will mean more stress than you need, and you’ll also pay much more interest over the years. It’s better to get a slightly smaller house with a smaller mortgage and then sell up a few years down the track when it’s a seller’s market.
There are also a lot of fees associated with buying a house. You’ll have mortgage fees, administration fees, and sometimes mortgage insurance. Some banks may insist on this, and either way it’s a good idea since it means that if you or your significant other are unable to work the mortgage will still be paid, giving you peace of mind. You’ll also have to allocate money for any building inspections to ensure that there aren’t any problems with the property, such as structural damage or water pressure issues.
Luckily for first home buyers, the UK Government has a few measures which will help you get that first house. The Help to Buy Scheme allows you to purchase a newly built house with a low-interest loan and small deposit- allowing you to own your own home that much sooner.
You’ll be able to buy your first home with a deposit of just 5%. The government will give you a 20% home loan with no fees, giving you a 75% mortgage. You can also get a 80-95% mortgage on both new-build and older properties worth less than £600,000.
For more information check out the handy infographic below.