The Ins and Outs of First Time Buying
Buying a house can be a scary experience, especially if it’s your first time. There are so many things you need to know to ensure that your application is approved in good time, and to make sure that you are being as cost-efficient as possible, maintaining your finances in the long run.
The process of applying for a mortgage can be a tedious one; countless months of saving, hours spent looking at your ideal home, reading up on finances and mortgage advisors. Whilst it might seem like an arduous task, it is also incredibly rewarding and is a fantastic milestone to reach.
Whether you’ve just decided to start saving or if you’re about to put your well-earned deposit down on your very own home, you might have some questions or concerns. Hopefully, this guide will help you navigate through the many complexities of buying a house, answering any questions you have along the way.
Save, save, save!
The first and arguably the most important step of taking out a mortgage is saving for the deposit, as banks might use this as a factor in accepting your application!
The primary reason that you need to save is to make sure that you have enough money for your house deposit, any associated fees, valuations or examinations and a mortgage advisor. There is, however, another reason that you should be able to show a documented history of saving.
When a bank assesses your mortgage application, they take a range of factors into consideration: your annual and monthly income, your monthly expenses, your credit file, any debt you may have and your ability to reliably pay money.
If you can show your mortgage advisor a documented history of reliable saving, it is likely to go in your favour. It not only shows that you can comfortably pay your bills on a monthly basis, but that there is a willingness to purchase a house.
There are government schemes that can help first time buyers save, such as the help to buy ISAs and savings accounts – you should browse the market and see which product suits you the most.
Compare rates and terms
It’s important to note that different lenders may charge different rates of interest depending on the term of your mortgage the total value, so you should compare different rates between different companies.
It may be worth considering the interest type too: mortgages will usually offer a variable interest (based on the Bank of England base rate) or a fixed rate, which will be fixed for a period of time before reverting to a variable amount.
It’s impossible to say whether a fixed interest rate is more beneficial than a variable one, as it does depend on your own preferences and financial requirements. It’s recommended that you do consult a mortgage advisor or financial advisor on matters as complex as this!
You should also compare rates between different energy or utility providers before you do move in – you might find that one company will offer a significantly better deal based on your area. As a side note – record your energy readings on the DAY of moving in. You can thank us later.
Clear your debt as much as possible
Debt can be useful in a variety of situations; as it can pull you out of potentially difficult circumstances whilst allowing you to build a credit score. For instance, it’s been known that individuals have used payday loans prior to applying for a mortgage to boost their credit rating and to show they can manage repayments.
It might be wise to pay as much of your debt off before you apply for a mortgage. By paying off your debts, you’re showing yourself as a low risk investment for the bank, with the financial ability and willingness to clear off any owed amount.
If you clear your debt before you apply for a mortgage, you might also have more money than anticipated throughout the month. This might come in very handy…
Overpay where possible
A mortgage is probably one of the largest investments you’ll make in your life, so it makes sense to pay it off as quickly as possible. Now, it’s not within everyone’s means to make massive extra payments, but even a small amount can quickly add up. For example, an extra £50 per month adds up to £300 over the course of a year!
Overpayments come with a few select benefits. The more you pay off your mortgage, the lower the balance will become, leading to lower interest payments. The faster you reduce your balance; the more money you’ll end up saving in the long term.
It can also be incredibly helpful to maintain a credit balance in your mortgage to prevent the risk of defaulting. As long as you make your agreed mortgage payment each month (unless stated otherwise), the credit balance will sit as a ‘buffer’ in your mortgage account.
If your circumstances were to change, a credit balance can prevent the risk of your account going into a collections cycle or showing as a default on your credit score!
There’s a lot to consider when you take out a mortgage, so it’s important to be prepared. If you do have any questions, you should contact either the bank you intend to borrow from, or a suitable financial advisor.