If you are a first time buyer and you are thinking of applying for a mortgage but have no idea where to start, then read on. This article will take you through everything from deposits to stamp duty and much more. And that’s even before you have found your dream home. There’s an awful lot to think about and take in when you first apply for a mortgage so why not share this article or book mark it for your convenience? Here are the points you need to consider.
Before you even start to look for a house you need to start preparing your bank account for scrutiny and work out how much of a deposit you can save in 6 – 10 months. Try to save as much as you can as a good-sized deposit will get you a better rate of mortgage. At present, most first-time buyers are putting down around 20%. Mortgage brokers or banks will want to see your last 3 months bank statements so make sure they are in good health, ie. no account charges for going overdrawn, no returned direct debits and no unauthorised use of an overdraft. These are the type of things that will get you turned down for a mortgage. If you have savings account, make a regular payment into it each month and this will show that you are serious about getting a mortgage and also that you can make regular mortgage payments. Work out your finances and decide how much you can reasonably afford to pay each month without it affecting your standard of living. If you have a credit card, try to pay it off in full each month, or at least, as much as you can afford. This shows that you are a good credit risk. Make sure you are on the electoral roll and that utility bills are getting paid on time.
Getting a Mortgage
If you know nothing about mortgages it may be in your best interests to hire a mortgage broker, but be aware, they often charge for their services. Ask what the fees are upfront before you sign any deal with them. Also find out if they are ‘whole of the market’ brokers, which means they cover all banks and lenders and are not just committed to dealing with one or two. There are a few free brokers; London & Country, FirstMortgage and John Charcol all offer free mortgage broking advice. Spend some time looking at the current property market and ascertaining what is on offer and what you can afford. If you are not going to hire a mortgage broker then make some appointments with your bank and talk to them about suitable mortgages for you. A good point to mention about brokers is that they may have access to deals that you might not be able to get on your own or through your bank. However, some major banks will not deal with brokers so you will have to do your homework first.
Types of Mortgage
The two main types of mortgages are fixed-rate mortgages in which you pay a fixed rate of interest for a set time, and a tracker mortgage, where the interest goes up or down in line with the Bank of England base rate. There are other types but it is best to speak to your broker or bank to get the best one for you. The amount of deposit you will need will always depend on the price of the property and what your salary is whilst the amount you can borrow from the bank or building society is typically around 4 to 4 and a half times your salary. If you only have a small deposit of say 5%, you could still get a mortgage, but the best rates will be attached to those with higher deposits of around 20 to 25%. Also, be aware that smaller deposit applications for mortgages run a greater risk of being rejected; you are not guaranteed a mortgage deal simply because you have applied for one. It all depends on the general state of the economy and many other factors.
Stamp duty is one cost buyers tend to forget about but it is worth remembering as it is a fee which is worked out on a percentage on the value of the property you wish to buy. However, first time buyers have until March 2012 to buy a home upto the value of £250,000 without having to pay stamp duty because of a government scheme. Other costs to consider are surveys for the property at the start of the house viewing, any arrangement fees, land registry fees, the lenders valuation, any legal and conveyancing fees and costs involving moving.