Regular visitors to the blog will know I’m currently saving up for the deposit on my first ever house. As I was a bit… no… VERY naive to the whole process when I started saving, I decided to do my research and unsurprisingly there is way more to it than I ever imagined. If you one day dream of owning your own property there are some vital things that oughta know before seeking out that dream home.
You save the deposit, choose your property and make an offer, right?
It’s a little bit more complex than that and there are a few things that you can do to make the process much easier. From saving your deposit to handing in the application, here’s what you need to know.
How much deposit will I need to to buy a property?
Before you have even considered looking at desirable properties and locations you need to get a deposit together. If, like me, you’re not lucky enough to have someone who can pay it for you, you’re going to need to save up. In most circumstances you are going to need between 5% and 20% of the cost of the property you want to buy – so if you’re buying a property for £100,000, you will need a minimum of £5,000. Saving more than 5% deposit will ensure you have a much wider range of lenders and cheaper mortgages available to you so it is wise to aim at 10% as an absolute minimum.
Check you can afford the monthly repayments
Sounds a such a simple thing to check, but it’s vital that you can keep up with the repayments. There is no point in saving every penny away for a deposit if you end up falling into financial difficulty and are unable to keep up with your repayments further down the line. It is good sense to make a budget before you even start looking for a property, this way you know what you can truly afford.
There are strict checks in place now when purchasing property. Lenders will check that you can not only afford the mortgage, but also if you can pass the ‘stress-test’, which determines your ability to be able to cope if interest rates were to rise, you have any children or are made redundant.
Lenders will ask you to provide proof of your income and outgoings as part of the mortgage application process.
Identify all the other costs of buying a property
There are several other costs you need to factor into your budget when buying a home. These include:
- Mortgage arrangement valuation fees
- Stamp Duty (Land Building Transaction in Scotland)
- Survey cost
- Solicitors fees
- Removal service costs
- Building insurance
Check out the home buyers schemes available to get you on the property ladder
There are a few government backed schemes available to you to which are aimed at helping first-time buyers onto the property ladder, and also to help current owners move.
If you qualify to use one of these schemes, lenders would still perform the necessary checks to ensure you can afford to pay the mortgage. Click the links for more indepth information about the following schemes:
- Help to Buy
- Affordable housing schemes
- Shared ownership schemes
- Help to Buy ISA
- Lifetime ISA (coming 6 April 2017)
Find the most suitable mortgage for you
This is where speaking to an expert is crucial. There are so many different mortgages to choose from that it can be really confusing as to which one will suit your best. It can depend on many different factors so do your own research and talk to a licensed mortgage advisor.
Know the difference between freehold and leasehold
This is something I have heard two million times on my favourite show Homes Under The Hammer but never had a clue until I read up on it a few months back.
If you’re looking to purchase a house, it is likely that you will be buying the freehold which basically means you own the land that the house sits on. If it is a flat or apartment you are looking to buy, you will be buying a leasehold, or buying a share of the freehold.
A leasehold means you only own your flat or apartment and not the land or communal areas, which is why you are usually charged a service charge by the person/company that holds the freehold, to pay for any ongoing maintenance.
When you have decided on the mortgage option you’d like to apply for, your lender will want reassurance that you will be able to keep up with your mortgage repayments if interest rates rise or there is a change in your financial circumstances.
You will be asked to prove your income and any outgoings you have including, household bills, outstanding debts and other associated living costs such as travel, childcare and clothes etc.
You may be required to produce payslips and bank statements to prove your income to your lender. If you’re self-employed you may be asked to provide your tax returns and your business accounts prepared by your accountant.
Someone can act as a guarantor
If you have found it difficult to get a mortgage to buy your first home you could consider a guarantor mortgage. Your parent, guardian or close relative can agree to act as your guarantor which means they would take responsibility for the mortgage repayments should you be unable to meet them.
You should never enter into a guarantor mortgage without careful consideration as it is a legally binding arrangement and the person agreeing to act as your guarantor has to be able to afford to pay your mortgage payments for you if you get into difficulty.
As always, with such a big decision you should always consult with a professional. A licensed mortgage advisor who will be able to take you through all your options available to you, as well as what you can expect to pay roughly in costs. It’s better to be as prepared as possible.
Did you have any problems when buying your first house?
He is also a contributor to Clear Debt, ICOUNT Money and M1 Debt Advice blogs discussing all things personal finance.