When buying a property for the first time, do not forgo what the experts say: it is a huge financial responsibility and your decision should, first and foremost, depend on your ability to afford it and how much you can.
Unless you are totally rich or you just won millions in the lottery, you are very likely to take out a home loan to afford your first time home buying venture. Getting a mortgage is generally taken out from banks and other loan providers, and payable for up to or over 25 years – subject to eligibility and terms and conditions. The debt is secured against the property, and the lender can repossess your home if you fail to repay them.
Before embarking on a search for the ideal home to buy, check out how much money you can borrow. You might want to get in touch with a trusted financial adviser (preferably at your bank) and present them your current financial status – your income, expenses, savings and credit standing. When determined, you may be able to have a “mortgage agreement in principle” which will say how much they may be able to let you borrow. This agreement in principle, though, does not tie you to anything or to the bank just yet, until everything is finalised and signed. You’ll only be given a ballpark figure of how much you may borrow.
A deposit for the purchase will also be needed, and this is typically not offered in the loan amount. You have to have cash ready for the deposit, which is set, on the average, at 10% of the agreed selling price. If you can afford more than that, you may have better chances of getting your mortgage approved at a reasonably lower rate.
Conveyancing
You’re going to need a good conveyancer to assist you with the legal aspects of buying and selling a property. Conveyancing fees differ enormously, but there’s something you can do to bring down the cost. Look for the best conveyancing quotes online and compare the fees of different conveyancers. You should be able to find a property solicitor at a reasonable cost.
Your Mortgage Options
Your bank can offer you a reasonable amount for a home loan, subject to their terms and conditions and your relationship with the. While not mandatory, this can be a better option for you, especially if you do not have the time to look around or if your bank offers a really good deal on repayment terms and interest rates.
On the other hand, you may take out a mortgage through a broker, who can look at deals available at different lenders and advise you of your best options, based on your situation. Also, there are instances where home loans are exclusively sold to mortgage brokers and not directly to borrowers.
Using a mortgage broker generally helps with the paperwork and dealing with the lender until everything is completed. Their income will be based though on how much they charge you or a commission from the lender. Before getting involved with a mortgage broker, check first how they are being paid.
The Rates
When taking out a mortgage, interests in repayments are inevitable. To properly set your budget, it is important that you know the details of interest rates applied in your loan.
Fixed Rate Mortgages
Some mortgage have fixed-rates, which means the same percentage of the loan amount is added to the repayment dues for a number of years. If the base rate implemented by the Bank of England increases and you are still covered by the fixed rate period, there’s no need for you to worry. But decrease in rates won’t change anything at all. When the fixed rate period ends, your mortgage interest goes back to the lender’s standard variable rate until the end of your mortgage term. Given that situation, you may continue paying at such rate or remortgage to a different lender for a better, cheaper deal.
Variable Rates
These are interest rates that fluctuate every given period, based on the Standard Variable Rate implemented by the lender or the Bank of England’s current rates. It is the lender’s call whether to conform with the Bank of England’s rate or add a little more percentage on it for their profit, so you may expect your repayments to be a bit higher if you’re taking out this type of home loan.
Tracker Mortgages
This one’s directly linked to the base rate implemented by the Bank of England. If the base rate is lower, it goes in on your favour. If the base rate increases though, expect a higher repayment due on your statement.
Always take note of these details when determining your ability to afford buying a house, especially for the first time. If you familiarise yourself with how rates work, you will never be in the dark and you’re very likely to plan your budget better.
