Eight essential questions every first-time buyer needs to ask
A foot on the property ladder beckons.
After years of determined saving it seems you’re finally in a position to become a first-time buyer.
But how ready are you, really?
Helen Crowther-Dowey, a mortgage and protection consultant for the Nottingham Building Society and Estate Agency, has eight essential questions every budding first-time buyer needs to ask themselves.
Find the answers to fit your circumstances and you’ll be cosying up in a home of your own in next to no time - with a mortgage that won’t keep you awake at night.
1. Have you saved enough?
Lots of first-time buyers forget the “hidden” costs of getting a home. You might have enough for a deposit but there are search fees, survey fees, valuation fees, mortgage indemnity fees, legal fees and stamp duty to consider. All can put a considerable dent in the cash you’ve set aside to buy a property.
2. Are you sure you’ve saved enough?
The bigger your deposit the better your choice of mortgages. A 5% deposit is usually the minimum for Help to Buy Guarantee Scheme mortgages. Putting down 10% or more will give you a wider choice of lenders offering more competitive rates with less restrictions over longer terms (a 30 or 35-year mortgage rather than a 25-year deal, for example, will bring down your monthly repayments). Is it worth saving for another few months to get a deal that will put less strain on your day-to-day finances?
3. Are you on the electoral role?
Being registered to vote is important for passing a lender’s credit score. If you’re not on the electoral roll it could hinder your chances of passing a credit score.
4. Can you pass a credit score?
Check your credit file for mistakes. Lenders will run checks before offering you a mortgage. Make sure your credit file is correct and potential problems are resolved prior to making a mortgage application. An unpaid mobile phone bill is the most common reason for a first-time buyer failing a credit score. Going into the red with your bank or failing to pay credit card bills on time also jeopardise your chances of getting a home loan. Equifax and Experian both offer free 30-day trials for customers wanting to check their credit files. Get a copy of your file and ask your mortgage adviser to talk you through it.
5. Do you meet a lender’s affordability criteria?
Affordability is the watchword for mortgages. Mortgage advisers and lenders are required by law to see documentary evidence (bank statements, pay slips, etc) to prove a borrower can make their monthly repayments both now and in the event of reasonable interest rate rises. Some lenders will give you more leeway on affordability than others. You also need to factor in the cost of insuring your property (having buildings insurance cover will be a condition of your mortgage) and insuring yourself against things (death, loss of income, redundancy, etc) that might stop you or your family being able to continue paying the mortgage if something horrible happened.
6. Can you make your finances more presentable?
Lenders will not like lots of debt in your name. Pay off as many credit card bills and hire-purchase agreements as you can. Make sure your bank balance stays in credit for at least three months before you apply for a mortgage. Some lenders will be relatively relaxed about the odd dip into the red (particularly if you’re putting down a 10% or more deposit). Others will use it to refuse your loan application. Some lenders also factor so-called “non-committed” expenditure (satellite TV subscriptions, gym membership, etc) into their affordability calculations. If you can do without them, it might help. Be aware that any “buy now, pay later” deals you take out for a TV, sofa or anything else will also go into a lender’s affordability calculations. Don’t take on credit for someone else - even if they are making the repayments. If your name is on the agreement, you are responsible for the debt.
7. Is it worth asking the bank of mum and dad for help?
Many lenders will accept cash “gifts” from parents or grandparents towards your deposit. One offers a mortgage which allow your mum and dad to put money in a specially designated savings account. This account will earn your parents interest and they give the lender security - helping you to secure a mortgage. Other parental help options are available. Find out what deals are out there and whether one might suit your circumstances.
8.Have you spoken to an independent mortgage adviser?
Don’t think you need to have all your deposit and be absolutely ready to buy before speaking to a professional. Get advice a few months beforehand. A good mortgage adviser will go through your finances, look for problems, suggest options and draw up an action plan to put you in the best possible position when the time is right to go looking for lenders.