First Time Buyers

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First Time Buyers Guide to Mortgage Applications

Buying your first home can be one of the most exciting times of your life but it does have its downsides and finding the right mortgage for your circumstances is essential as you take your first steps on the property ladder. As a first time buyer, there will be lots of unfamiliar terms and practices to get to grips with, so it’s best to start your research early and arm yourself with as much information as possible.

With the right preparation and advice, you can ensure that your first property purchase is a total success and look forward to living in your own property for the first time.

What is a first-time buyer?

Because there are aspects of owning a property as a first-time buyer that are unique, for example, a lower rate of Stamp Duty is charged when you buy your first property, there are some legal definitions that apply to a first-time buyer, the main one being that, with a few exceptions, you must never have owned all or part of a property elsewhere.

How is the process different for first-time buyers?

As a First Time Buyer, you obviously will not have the proceeds of a sale to put towards the purchase of your new home. This being the case, mortgage lenders will often provide specific deals aimed at FTBs which may require a lower deposit. You should, however, still expect to put down between 5-20% of the purchase price. The greater deposit you are able to offer the lower the cost of buying your first home is likely to be and the more choice you will have in terms of the mortgage products available to you.

The amount you can borrow is usually dependent on your income and even when you’re applying for a first-time buyer mortgage it’s possible to borrow three or four times your annual salary, depending on the lender you choose. Any mortgage provider will want to assess your outgoings to confirm that you’ll be able to make the monthly repayments, and If you want to maximise your borrowing power, it’s a good idea to reduce your outgoings before you begin the process of applying for a mortgage. You will want to present your very best financial profile to potential lenders throughout the mortgage application process.

What is an Agreement in Principle?

When you are searching for a property you will want estate agents and house sellers (vendors) to take your interest seriously. Having an Agreement in Principle to show them is the best way of doing this. An Agreement in Principle is essentially a confirmation from a lender that they are prepared to offer you a mortgage loan, providing certain conditions are met. A mortgage provider may give you an Agreement in Principle-based on your declared income, expenses, and savings, but will need you to verify these and provide documentation at a later date to get your hands on your much-prized mortgage offer.

How do I Know What my Credit Score is and How do I Improve it?

You will hear the term “Credit Score” talked about a lot when you are applying for a mortgage loan. All types of lenders use your credit score to determine if you’re likely to be a reliable borrower. You can check your credit score using a credit agency, like Equifax or Experian. If you want to increase your chances of getting a first-time buyer mortgage, you can improve your credit score by keeping up with repayments, removing inaccurate credit report entries, and reducing your overall debt. Credit agencies will be able to help with this and many use a web chat service to make the process easy and discreet.

What type of Mortgages are available to First Time Buyers?

There are two main types of mortgage available when you are buying your first home. Fixed-rate mortgage deals give you the peace of mind in knowing how much your monthly repayments are going to be over a certain period of time.

Your alternative would be to take out a Variable Rate Mortgage in which case your monthly payments will fluctuate. This type of mortgage would normally start with a lower interest payment so can be attractive to first-time buyers, however, it’s important to bear in mind that your monthly payment can go up as well as down.

The interest rate on a Standard Variable Rate mortgage will follow the lender’s base rate which can cost more, but this type of loan may be more flexible and come with lower exit fees.

A Tracker Mortgage is also a type of variable rate loan, but one where the interest rate follows that set by the Bank of England rather than the lender. This type of loan can result in lower monthly costs but may be more expensive to exit.

The final type of variable rate mortgage is a Discounted Variable Rate mortgage in which case your mortgage payment will be set at a certain percentage rate below that set by the lender. This type of variable rate mortgage is only available for a short period at the start of your loan and may mean a sudden jump in your monthly payments when the deal comes to an end.

Try using a mortgage calculator online to see how the different mortgage rates compare.

Can I get any help as a First Time Buyer?

There are several schemes designed to help you when buying a home for the first time. If you use a Lifetime ISA to save for your deposit the Government will add 25% to the amount you save up to a maximum of £1000 per year.

The Help to Buy Scheme will help you to buy a brand new home with the Government lending you up to 20% of the property’s value in England & Wales. You might also want to investigate the possibility of joining a Shared Ownership scheme with which you would buy a share of the property and pay rent on the other part, with the option of gradually increasing the percentage you own as time goes by.

What else might I need to budget for?

There are a few other items you will need to budget for when buying your first home. Stamp Duty is a transaction tax that is normally levied on property sales but this may be reduced or not charged at all on your purchase as a first-time buyer. Check the stamp duty calculator to see how much stamp duty, if any, would be due on your property purchase.

You also need to budget for home insurance and the cost of a survey or valuation of your chosen property and legal fees. Lenders will always want to check the value of the property, taking into account local demand and house price trends, but may want a more detailed (and more expensive) survey of older homes. Legal Fees are normally agreed in advance with your chosen solicitor for your house purchase.

If you are moving out of a rental property or your family home you’ll probably need to factor in removal costs too. Many first-time buyers will get help from their families and friends when moving house but even Dad’s work van needs fuel!

If you are using a mortgage broker then remember there may be a cost associated with that, even if in the long term they save you money. It’s normal for the cost of a mortgage adviser to be covered by your monthly mortgage payment as the lender will pay a small percentage back to them in exchange for their services.

How do You Arrange a Mortgage?

As a first time buyer, you could apply directly to a lender, particularly one you already deal with and hope that they will approve your mortgage application straight away. To be sure of finding the most suitable lender for your particular circumstances, this might involve making a series of mortgage applications and end up being a time-consuming, costly, and stressful process.

Is any help available with the application process?

Getting a first-time buyer mortgage can seem daunting at first, so you’ll want to access all of the help you can. By consulting straight away with a reputable mortgage broker or mortgage adviser, authorised and regulated by the financial conduct authority, you can learn more about the mortgage process and find out exactly what deals are available to you.

A mortgage broker will be able to help you find the lowest interest rates and the most generous lenders, based on your unique circumstances, and may have access to exclusive mortgage products and lower interest rates, that even the lenders themselves cannot offer you!.

With professional assistance, the entire application process can be handled on your behalf, and, exciting as the purchase of your first home might be, it can be a stressful time of your life too, so grab as much help as you can and enjoy this exciting chapter in your life!

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