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When you buy your first home you might be overwhelmed by the different types of mortgages out there. You need to think about what property you want to buy and what monthly payments of mortgage repayments you want to be making as well as the deposit purchase price. First Time Buyers mortgages can be complicated so below is a First Time Buyers guide to clear up some questions you may have.
What is a First Time Buyer?
A First Time Buyer is someone who is looking to purchase a property for the first time, this can be a house or a flat as First Time Buyers have never owned property before they are desirable to sellers and lenders as they do not have a property that they need to sell.
You need to work out what you can afford, this includes the house price, the fees involved in moving, and the repayments each month. Getting a mortgage is a big financial responsibility and you should try to make sure you are in a good place financially before applying for a mortgage.
There is a process to follow as a First Time Buyer; firstly, you must find a property that you can afford and make an offer. Once you have done this you will need to arrange a solicitor and surveyor. They will go into the property you are interested in buying and check for anything which devalues the house as well as handling the legal documents when it comes to your mortgage.
If you miss repayments on your mortgage your home can end up being repossessed. It is important to ensure you can afford the mortgage you are applying for. If you are unsure of any part of the mortgage process, then it is always worth getting in touch with a mortgage broker for some advice.
What is an Agreement / Decision in Principle?
An agreement in principle is an estimate from a Mortgage Lender of how much money that you can borrow. They are not legally binding or necessary, but you can use them whilst house hunting and show sellers that you are serious about purchasing a property.
You can apply for one online, by phone, or by calling the lender’s branch directly, they are free. Depending on the lender they could be a hard or soft check.
You will have to provide personal details such as your name, address, date of birth, and information regarding your finances. An agreement in principle is not a mortgage offer, this will come after you have gone through the full mortgage application process and been accepted by a lender.
How much can a First Time Buyer Borrow?
Provided that you have a good credit score, and your finances are in order, you can access up to five times your annual salary as a mortgage loan. Mortgages are usually loan-to-income so the amount you borrow will be largely based upon the amount that you earn.
A bad credit score can affect the amount that you can borrow as it deems you as a high-risk borrower. It is important to keep up with your monthly outgoings and to clear any debts to get the best credit score that you can.
There are lenders out there who will accept you onto a mortgage even with a bad credit rating, but they tend to offer more expensive rates. It is best to speak to a mortgage adviser to make sure that you are getting the most out of your current situation, no matter what it might be.
What deposit will I need as a First Time Buyer?
You should aim to save for at least a 5% to 20% deposit for purchasing your first property. There are certain schemes available to First Time Buyers to help them get onto the property ladder which this guide will delve into later.
The bigger the deposit that you can provide the more options you are going to have when it comes to lenders, mortgage products, and mortgage interest rates. If you do have bad credit, then saving for a bigger deposit would be a good option too.
How do I know what my credit score is and how do I improve it?
You can check your credit score online through sites such as Experian, Equifax, or TransUnion. It is important to keep on top of your credit score especially if you are looking at purchasing a property.
There are a few things you can do if your credit score isn’t as high as you believed it was, for instance:
- Pay off any debts that you owe
- Register on the Electoral Register
- Close any unused accounts
- Ensure you are not being financially tied to old partners or housemates
- Avoid payday loans
- Take out a credit card (if you have no credit).
Having no credit is just as bad as having a bad score, if there is no proof of you borrowing lenders will be asking questions and might not lend to you. You can build up credit by taking out a credit card, this too is a decision that shouldn’t be made lightly.
What help is available for First Time Buyers?
There are a number of different government schemes in place to help First Time Buyers onto the property ladder, for instance, Help to Buy. This is a scheme in which the government matches a 5% deposit with another 20% to give you a bigger deposit to approach a seller with.
The Help to Buy scheme is an equity loan that is interest-free for the first five years. There is also a new scheme coming in which helps you to buy a new build at discounted rates to give you a nudge into the world of property.
You can also go in for shared ownership where you buy between 25% and 75R% of the property and then pay rent on the portion you do not own. It can be a good option if you cannot afford to buy a property outright but can afford to buy a large portion of it.
How can a local Mortgage Broker help if you are a First Time Buyer?
Local Mortgage Brokers know the area and can offer a more personal and tailored service as they know the area that you are interested in buying in. When shopping for a mortgage the options can be endless but there are also lenders that aren’t available on the high street.
Mortgage Brokers have access to the mortgage market meaning they can find a range of different products and mortgage rates to fit your needs and current situation. We can save you the time and stress of the search and help to get your mortgage application together.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Podcast Interviews With The Home Financial Team
Ross from Home Financial NW has helped me through every step of the mortgage process over the last few months, a process made much more difficult owing to the fact I am self-employed. He has expertly guided me through every stage of my application and helped me to secure a mortgage for a new house. Throughout the last few months he has provided amazing expert advice in such a friendly way, it has made the entire process super easy and stress free! I would highly recommend Ross to anyone I know.
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