While it can be difficult for first time buyers to make their way onto the property ladder, it isn’t impossible. This first time buyers guide aims to prepare you for buying a home and explaining what you need to do when looking to purchase a property.
The first thing to be aware of is the importance of having a deposit. While the 100% mortgage has returned in 2016, many first time buyers will be unable to benefit from this style of mortgage, so it makes sense to save as much money as you can for your deposit. The larger the level of deposit you can save, the better mortgage you will be able to obtain. You should be looking to save at least 5% of the total cost of your property for your mortgage but if you have the time and money, you should look to save up to 20% if at all possible. If you are looking to buy a property valued at £150,000 the minimum amount of money you should be looking to save is £7,500.
This is a large amount of money but you’ll find that there is assistance available, including Help to Buy ISA support.
It can be easy to just look at the cost of the property or the mortgage payments you need to make each month and focus on ensuring you can pay that. However, there are many other additional costs involved with buying a home, which you will need to budget for.
Some of the other costs of buying include arranging a mortgage and having the property valued. You may have to pay stamp duty, there will be solicitor’s fees and you may have to pay for the cost of an independent survey. With removal costs, building insurance and the initial cost of decorating and furnishings, you’ll find that you have many costs to consider when looking to buy a home but it is good to be prepared for this before you start committing to viewing property.
When you apply for a mortgage, the lender will carry out strict checks on your credit score and your financial status, and they will aim to determine if you can afford to pay the mortgage each month. This will also include a stress test which will judge your ability to pay if interest rates rise or your circumstances change. This means the lender will judge your ability to pay the mortgage if you have children or you are made redundant. The fact that lenders will place your finances under great scrutiny means you should be proactive and know what your budget consists of. If you can make improvements to your budget, raising income and lowering expenditure, you’ll increase your chances of being accepted for a mortgage.
While there are many different types of mortgage to choose from, they mainly fall into two categories, which are:
If you are looking for stability and consistency with your mortgage, a fixed rate mortgage is likely to be better for you. This will allow you to plan ahead and know how much money you’ll be spending each month on your mortgage. The interest rate for a fixed rate mortgage tends to be slightly higher than the starting point for a variable rate mortgage but many people prefer the consistency and assurance that this mortgage offers.
With a variable rate mortgage, the money you pay each month will depend on the behaviour of interest rates. If you are fortunate, interest rates will fall and the amount of money you have to spend each month will fall. If you are unfortunate, interest rates will rise and the amount of money you have to spend each month will rise. It is easy to see why many people are cautious about this style of mortgage because it could end up costing them a lot of money but a lot of people have benefitted over the years through having a variable rate mortgage.
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