Mortgage Tips for First-Time Home Buyers
A few moves in advance making an offer and then shopping around can lead you to a good deal on your first home.
When you are buying your first home, the world of mortgages can seem quite daunting. Follow these steps to land a competitive mortgage at a rate that you can afford.
Show what you can afford
One of the key tasks for any lender when they receive a mortgage application is to check that the borrower will be able to afford the repayments, not just now but in the future, too, when interest rates may have risen or your circumstances changed.
To do this they will go through your last few months of bank statements to get an idea of how you spend your money. So, ahead of applying, it’s a good idea to get your finances in shape, cut out any unnecessary spending and demonstrate you really can afford that loan.
This budgeting process will also give you a clearer idea of how much income you have each month to devote to the mortgage, and what level of repayment you would feel comfortable with.
» MORE: How much mortgage can I afford?
Build your deposit
The bigger the deposit you can put down, the better, and this applies whether you’re a first-time buyer or a seasoned homeowner.
Moneyfacts reported in July 2020 that there were just 14 deals available on a 95% loan-to-value basis, compared to 70 at 90%. The average two-year fixed-rate was 3.94% on the 95% deals, where borrowers had only paid a 5% deposit, but 2.9% on the 90% deals where borrowers had been able to stump up 10%.
So not only does a larger deposit mean you will have more products to choose from, but they will also come with a lower interest rate, meaning smaller monthly repayments.
» MORE: About loan-to-value ratio
One way to boost your deposit is to open a Lifetime ISA, which sees the government top up the money you save each year, so long as it is then put towards purchasing a property (or for later life).
Lifetime ISAs can be opened by anyone aged 18 to 40. You can save up to £4,000 each year, which the government will boost by 25%, up to a maximum of £1,000. As with other ISAs, your money can be held in cash or invested in stocks and shares.
Get an agreement in principle
Before you start your property search, it’s a good idea to get a mortgage agreement in principle from a lender. This is where they state what they might be willing to lend you, in principle, should you go forward with a full application. You can do this with your chosen lender online or over the phone.
Although this is not a mortgage offer, it is helpful in terms of seeing what you may be able to borrow, but once you have found a property you like, it shows both the estate agent and the seller that you are serious and can increase the chance of getting your offer accepted.
When you come to apply for your mortgage, you do not need to use the lender that supplied your agreement in principle.
If you haven’t taken out a mortgage before, the whole process can seem overwhelming, and you might be tempted to head straight to a high street bank you are familiar with. This is not a great idea. There is a lot of competition in the mortgage market, with some of the most attractive products coming from lenders you may be less familiar with.
By shopping around and comparing rates from all lenders, you have a much better chance of finding a more affordable mortgage.
» COMPARE: Mortgage rates and deals
Questions to consider
Should I speak to a mortgage broker?
Although comparison sites let you get a broad view of the market fast, you may be more comfortable getting professional advice.
A mortgage broker will talk to you about your circumstances and what sort of risk you are happy to take on when it comes to your loan, and can advise what is the best product for you. Some lenders offer their products only through mortgage brokers, so using one may mean you enjoy greater levels of choice. And because they know the criteria employed by different lenders, they can also guide you towards lenders who are most likely to approve your application.
Once your broker has tracked down the right loan for you, they will put in your application and can liaise with your lender if there are any holdups.
Some brokers earn income by taking a commission from lenders, while others also charge borrowers a fee for their services.
When will I make my first mortgage payment?
Your first mortgage payment is generally higher than your normal monthly repayment. That’s because you are charged interest for the period between the day you complete on the property and the end of that month.
» MORE: All about mortgage payments
Say that your monthly mortgage payment is scheduled to come out on the first of the month. If you complete on the 15th of September, your mortgage payment on the 1st October will be for the normal repayment amount plus the interest charged between the 15th and 30th September.
Thankfully this is only the case for that first repayment.
You can also speak to your lender to set the day of your monthly repayments. If you are normally paid halfway through the month, for example, you may prefer to set your repayment date shortly after payday.
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John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more