Our guide to your first mortgage | Homebuyers Guides | YBS
Buying your first home is often the biggest financial commitment you make and can also be the most difficult. From working out what you can afford and sizing up the different mortgage deals available, it’s important that you’re well informed when it comes to making decisions.
Our First Time Mortgage Guide outlines what we think are the key aspects to the homebuying journey and includes tips on working out affordability as well as what to look for when viewing properties and what types of home survey are available.
1. Work out your finances
Before you get to the stage of looking at potential properties, you should look at your personal finances. Specifically:
2. What can you afford?
When you have a better idea of your financial situation, it’s a good idea to look at what price property you can afford – as well as the deposit (usually at least 5-10% of the purchase price as a minimum) there are legal costs and the price of a valuation and a survey, if necessary.
You should:
Try out mortgage cost calculators on mortgage lender websites or independent money advice sites. This is an easy way to help you work out what you can afford and how much you’d be able to borrow.
3. Choosing a property
When choosing where to live it’s worth making a list of what is important to you. You should consider:
Viewing properties
When you begin viewing properties, make sure you take someone else with you – if buying on your own, this could be a friend or relative. It’s also a good idea to visit properties at different times of the day and at weekends and weekdays – this way you’ll get a good idea of the area and local community plus you’ll be able to find out what parking is like.
Don’t rush!
You’re viewing a property that might be your home for the next 10-20 years so it’s worth taking your time and checking that the structure is sound and whether there are any apparent issues with damp or the roof. Storage space is a key aspect which is often overlooked when properties are viewed for the first time. Make sure you’ll have enough space for your belongings and more practical items like cleaning materials and vacuum cleaner.
4. A quick guide to mortgages
Mortgage deals
Mortgage comparison sites are usually a good place to start looking for a mortgage deals as you’ll be able to search and filter deals to make sure they meet your requirements. It’s good to know to know your Loan to Value before you start and how long you want the initial part of the mortgage (e.g. the first 5 years of your mortgage if you choose a 5 year mortgage deal) to last for.
Interest rates
A fixed rate is one which remains the same throughout your mortgage deal whereas a variable rate is one that can change over the term. Which one you choose can depend on whether you’d prefer the stability of knowing what your repayments will be for a set period of time, or whether you’d like to opt for a cheaper deal whilst rates are low. However, you should be aware that with a variable rate, your repayments can rise if the interest rate rises.
What’s Loan to Value?
For example:
Purchase price of £200,000, mortgage of £180,000 + deposit of £20,000
= Loan to Value of 90%.
The application
There are 2 parts to the application: the Decision in Principle and the full application.
The Decision in Principle (DIP) shows that your lender is prepared to lend you the necessary amount to purchase the property. It involves providing information on your employment, income and outgoings plus providing the loan amount you need to borrow.
When the Decision in Principle has been successfully obtained you can complete a full mortgage application. This is an extension of the Decision in Principle and usually means providing details of the property being purchased and selecting your chosen mortgage deal. You may also need to pay any applicable fees and provide details of your legal adviser (a solicitor or licenced conveyancer). You can find out more about this on our conveyancing page.
Surveys and valuations
Types of survey
Condition Report – this is the lightest survey and is most suitable for new builds or properties in a good condition. It doesn’t include a valuation. Cost: around £250
HomeBuyer Report – this is suitable for most properties and will highlight structural issues and anything which may not be apparent on viewing the property, like damp or issues with walls and roof. Cost: start at around £400
Home Condition Survey – this survey provides as much information as the Building Survey and uses a clear rating system to highlight issues and any potential problems. Cost: around £400-500.
Buildings Survey – this is the most comprehensive survey on offer and is particularly good to choose if the property is older or in a state of disrepair. The report provided is very extensive and provides details on repairs although a valuation is not included. Cost: can be upwards of £500-600.
Source: https://www.moneyhelper.org.uk/en/homes/buying-a-home/a-guide-to-homebuyer-surveys-and-costs
5. From making an offer to moving in
After your offer has been accepted, here are the next stages on your homebuying journey:
Paying your deposit & fees
You’ll need to pay the deposit plus the legal costs and any fees direct to your solicitor. When the time is right, they will arrange to pay the purchase price to the solicitor of the person selling the property.
Mortgage offer
After your application has been processed, your mortgage provider will send you a mortgage offer. This document formally sets out the terms of your mortgage and provides a breakdown of all the costs involved.
Exchange of contracts
So you’ve signed and sent back the mortgage offer – next your legal representative will begin the exchange of contracts with the sellers solicitor. This is the legal process of setting out the terms of the purchase and means you are legally bound to the purchase.
Completion & moving in!
Completion is the date when the property is legally transferred to you and is usually (although not always) the same date as you move in. This is also when the balance of the purchase price is transferred to the sellers solicitor.
