Pages Navigation Menu

Everything Personal Finance

A Guide For First-Time Home Buyers

If you are a first-time buyer and want to get on the property ladder, then where do you start? The whole process can be pretty daunting to say the least. From varying deposits to help-to-buy schemes, there is a wealth of information to look up, and a wealth of decisions to make. So a little step in the right direction is always a good thing when it comes to buying your first home.

But first thing is first, how much money do you need to save for a deposit?

It can vary from where you are in the world, to the price of the house that you are looking to buy. But there are very few lenders that will lend to you without a fairly hefty deposit, especially with the market as it is. As a rule of thumb, you generally need to save around five to twenty percent of the cost of the home that you’re looking to buy. Which is why having a good knowledge of the market is going to stand you in good stead, as well as an idea about where you want to buy. As we know, the cost of housing can vary pretty greatly in different areas of the country, and how far out you are from commuter towns or cities.

 

So imagine that you want to save for an apartment that costs $150,000. Then you would need to save at least $7,500 as a deposit, which is saving five percent. But even then, it can be completely up to the bank or lender to see if they would accept five percent, or if they need anymore. So speaking to a few banks and lenders is a good thing to do. As a rule, the more deposit that you have, the more options are open to you. So the key thing at the moment is to save, save, and save some more!

image

Hidden Costs

When you move home, there are some hidden costs that come with it; you are never ‘done’ after you have made an offer and had it accepted. So when you are calculating how much money you need to borrow, the additional costs should be considered as well. Here are some of the extra costs that you might encounter:

  • Legal Fees – there are likely to be some legal fees, as buying a house is a big deal, and it needs to be done correctly and legally. So hiring a solicitor is part and parcel of the process. They will make sure that everything is above board when you are buying or selling.
  • Survey Costs – if you have made an offer on a home but want to get an expert’s opinion on the house, then survey fees are another cost to think about. A surveyor can spot things that you wouldn’t have been looking for, such as dry rot, damp, or other damage that could be costly to repair. So it can be money well spent, especially if they find something that flags up as a pretty big deal that will need even more money to repair. Having said that, if you then decide to pull out of the purchase, that will still be a cost you have to cover. So that should be something that you can pay for with savings or regular income.
  • Removal Costs – unless you are moving to the house next door and can move all of your items by hand with the help of some friends, then you will have some removal costs to think about. From hiring people to pack up for you, to a van to move furniture, or for people to carry boxes, there are a range of removals that you can hire. And no doubt you will need at least one of them to help you to move house. Not to mention that there are additional costs for setting up new broadband, electricity, and heating accounts when you move. Which is where something like a moving home electricity plan can come in, to allow you to simply move your account across. All of this needs to be planned for, though, and budgeted into the cost that you need to borrow from the bank.
  • Furnishing – if you have been living in rented accommodation or living with parents to save money, then you are unlikely to have all of the furniture that you need for a whole house. So although you can get things bit by bit, there will be some things that you need to be able to buy upfront, like seating and bedding.
  • Taxes – depending where you are buying and how much the cost of the property you are buying is, there can be some taxes involved with buying a home. It isn’t always the case, but it can be, especially on more expensive properties. So that needs to be looked into and researched so you know how much extra to borrow. In some cases, it can be quite a hefty fee.

Monthly Repayments

The next step after finding out how much you need to borrow in total, is to figure out how much you can afford to pay off each month. So looking at your and your partner’s (if applicable), income is really important. Sit down and write out a strict budget. What exactly comes into the home after taxes each month? How much do you spend on groceries, fuel, and bills? Once you have had a look at what you spend money on, you will be left with what could be there to pay the mortgage. Using an online mortgage calculator, you may be able to figure out what the monthly repayments would be for the amount that you want to borrow. Of course, the longer the mortgage term, for twenty-five or thirty years, for instance, the less you can pay each month. So that is a factor to consider too.

It is a good idea to not spend everything you have each month so there is barely anything left. Simply because emergencies do happen, so having some contingency money is a good idea. So consider this when you’re working out how much you can afford to pay back each month. From there, you can almost work backwards and then figure out how much that amount will let you borrow in total, which will help you know the price of the homes that you should be looking at. It does all tie in together, to hopefully not make it feel as daunting as you might first think.

The Mortgage Application Process

Applying for a mortgage can be a fairly long process, as the lender will want to check all of your details slowly and carefully, to check that you can repay the money each month. So it can be a good idea to apply for it sooner rather than later, especially if you are starting the house hunting process.

Make sure that you are keeping records. The lender will want to see the proof of your incomings and outgoings. So from the detailed budget that you will have made earlier in the process, you can show that, as well as things like bank statements, payslips, and invoices for your bills. They will also want to check any additional debt that you have. Do you have a loan for your car perhaps or money outstanding on credit cards? If you do, then they will want to check what you owe, how much is paid back and when, as well as if you have enough income to cover the costs of it all. If you are self-employed, then it is another reasons to keep all of your records up to date. As you don’t have a formal paycheck, then they will need to see your records of your income and that you have paid back your tax return on time.

Mortgage Guarantor

If you have tried this process before and just can’t get approved for a mortgage just yet, then not all hope is lost. You could still be considered for a mortgage, especially if you could consider a guarantor mortgage. Not all lenders will be open to this kind of thing, but some certainly are. This basically means that someone else, perhaps a parent or other relative, is accountable for paying the mortgage if you are not able to. However, don’t just take this lightly; it is a pretty big deal for the guarantor and it is a legally binding agreement. So they have to be in a position to pay, just in case you are not able one month, for instance. It could mean that you are likely to then be in debt to the guarantor as well, so it can spiral out of control if you’re not careful with it.

So as you can see, there are various options if you are looking to get onto the property ladder for the first time. Don’t rush into it, but once you’re a homeowner, then it can be a great thing for your financial future.