Top tips for First Time Buyers
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Ten Top Tips on First-Time Mortgages
When applying for a first-time buyer mortgage, the lender will undertake an affordability assessment just the same as they would for anyone else.
This involves looking into your annual salary and any other income that you receive, as well as your outgoings, including credit card and loan debts, household bills, general living costs, childcare and travel.
Follow these top ten tips below for the best chance of getting the mortgage you want.
1. Get a Good Credit History
Your credit history will be considered when applying for a first-time mortgage so the lender can decide whether you are likely to be a reliable borrower. Mortgage lenders will normally assess the previous six years of the applicant’s credit history to look for any issues. This will then be used in the assessment to decide how much you can borrow.
There are some things you can do to help build your credit score:
- Opening and responsibly managing a current account will help your credit rating.
- Set up some regular direct debit payments to pay bills such as your car loan or mobile phone.
- Pay your bills on time and don’t miss any payments.
- Consider getting a credit card: if used well, it can help you build your score over time.
2. The bigger the deposit the better
The bigger deposit you can have, the lower the risk you are to a lender and the better deals you’re likely to have access to from providers.
Mortgage interest rates are lower with a 10% deposit compared to 5% and rates get better if this increases further.
When you get a mortgage deposit of 15 – 20%, you start to access more attractive mortgages. Therefore, the recommended minimum deposit size is 15% of the price of your new home, even though this is a push for many first-time buyers.
3. Get an Agreement in Principle (AIP or DIP)
An agreement in principle (AIP) or (DIP) decision in principle is an estimate from a bank or building society of how much they may be prepared to lend to you in order to buy your property. You can then show it to estate agents and vendors to prove, in theory, you can get a mortgage.
You can normally get an AIP within 15 mins of a consultation which is normally valid for up to 90 days.
An AIP is not a guarantee that you’ll get a mortgage offer, but it’s good to know what factors may impact the lender’s decision when you make your full application.
4. Buying with someone else may make the process more affordable
If you’re finding it difficult to save for a deposit on your own, you might want to consider buying with someone else.
This could boost your chances of getting your first step on the property ladder. Alternatively, you may consider shared ownership schemes which mean you can buy a share of a property making the sale price much more affordable.
However, buying a house isn’t the same as renting; it’s a binding legal and financial commitment. It’s not so easy to get out of a joint mortgage and there can be financial repercussions for your future.
5. Look out for hidden terms and conditions
Applying for a mortgage can feel like a long and confusing process, with a lot of forms to fill out. It is important to look for hidden terms and conditions in a mortgage.
Make sure you know what the costs are if you want to get out of your mortgage agreement.
An exit fee (and/or early repayment charges) is charged for closing or switching your mortgage before the end of your deal.
There can also be charges when you just finish paying off your mortgage, known as a mortgage redemption fee, deeds release fee or exit administration fee.
6. Proof of income for a First Time Buyer
Mortgage lenders will need to see proof of income, so you’ll most likely need a P60 which you get every year from your employer if you are on PAYE. It shows a summary of your pay and what deductions you have had.
You will also sometimes need three months’ worth of bank statements and three month’s payslips so the lender can look at how much you have coming in as well as going out.
If you are self-employed, lenders need proof that you’ll be able to keep up repayments, so they’ll ask to see an SA302 or Tax Calculation from the last two years from HMRC or your full accounts for the last two years, along with a certificate from your accountant.
7. Make sure you can afford your monthly repayments
In principle, you may find that you can afford the monthly payments, but you also need to consider the other costs involved in running a home and any responsibilities you have. As well as the monthly mortgage repayments, you will have food, council tax, utilities, insurance, clothes, hobbies, mobile phone, childcare, car and petrol and any loans you may have.
8. Try to clear existing debt
If you’re submitting a mortgage application, large debt on credit cards or outstanding loans are not attractive to prospective lenders. Neither is being close to the credit limit of credit facilities.
Before you apply for a mortgage, try to demonstrate that you can manage money responsibly by reducing any debts you have. This will mean any mortgage application you make is more likely to succeed and also mean you may be able to borrow more when it comes to a lender’s affordability calculations.
9. Don’t forget the other costs involved with buying your first home
It’s not just the deposit that you’ll need when financing your first home.
First-time buyers don’t currently pay stamp duty on property purchases on properties valued below £300,000. However, this tax is payable on a sliding scale above this threshold.
There are also solicitors’ costs to budget for, valuation fees, surveyors’ charges and mortgage providers’ arrangement fees.
10. It is cost effective to get help
If you’re struggling to find the right first-time mortgage deal, or you don’t know much you can borrow, it’s a good idea to enlist the help of a mortgage broker.
Stuart Brown Mortgage and Insurance Brokers research the market for you and support you through the application process.
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