Five Mortgage Tips for First-Time Buyers

Collecting the keys to your first home is a thrilling prospect, but first you need to tackle the mortgage application process. Read on to find out five simple tips every first-time buyer should know before applying for a mortgage.

John Fitzsimons, Brean Horne Last updated on 14 December 2021.
Five Mortgage Tips for First-Time Buyers

Buying your first home is an exciting milestone, but applying for a mortgage can be daunting. Simple steps, such as working out how much mortgage you can afford and shopping around, can help you find the best offers.

Read on to find out five tips and tricks that could help boost your chances of getting a good first-time buyer mortgage deal.

Work out how much mortgage you can afford

Before applying for your first mortgage, it’s a good idea to review your finances and check how much you can afford to borrow.

This is because mortgage lenders must carry out affordability checks to make sure you can repay the loan.

They will look at your income, expenses and credit history to assess whether you’ll comfortably meet your mortgage repayments now and in the future if your circumstances change.

Creating a budget can help you get an idea of how much you’ll have to put towards mortgage repayments each month. Take a look at your bank statements and credit card statements over the past few months and make a note of your:

  • Income: Your salary, bonuses, benefits or any maintenance payments.
  • Essential expenses: Rent, household bills, groceries and travel costs.
  • Non-essential expenses: Hobbies, socialising, holidays, and any leisure activities.
  • Debt: Credit repayments for any loans, credit cards or overdrafts.
  • Savings and investments: Deposits into a savings account, ISA or investment portfolio.

A mortgage calculator, such as NerdWallet’s, can give you an idea of how much you could borrow based on your income. Some mortgage calculators also show you how much deposit you’ll need and what your repayments may be at varying levels of interest.

» MORE: How much mortgage can I afford?

Save up your deposit

Lenders ask for a house deposit of at least 5% of the property’s value when you apply for a mortgage.

But saving up a larger house deposit could help you access better mortgage deals with better rates of interest. The more money you pay up front, the less you have to borrow from a lender and pay interest on.

You’ll need to research the types of property you would like to buy to get an idea of how much deposit you need to save. If you are unsure of where you might want to buy, using average house price figures can help you get a rough estimate too. Currently, the average cost of a home in the UK is around £270,000 so a 5% deposit would be £13,500 while a 20% deposit would be £54,000.

Saving up a deposit can take time and effort, but there are ways to boost your finances. Opening a Lifetime ISA could help by topping up your savings with a government bonus.

Lifetime ISAs can be opened by anyone aged over 18 and under 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.

» MORE: Five ways to save for a house deposit

Check your credit score

It’s important to check your credit score before applying for a mortgage. Your credit score gives a snapshot of your history with borrowing and managing repayments.

Lenders will run a credit check when you apply for a mortgage to see if you are a reliable borrower with a good track record of repaying what you owe.

As a general rule, a higher credit score increases your chances of being accepted for a mortgage, while a lower credit score lessens your chances of being approved.

This is because a high credit score suggests to lenders that you have a good track record of repaying debt on time. On the other hand, a low credit score implies that you may not be able to keep up with your repayments in the future.

If you have a poor credit history or no credit history at all, it will be worth taking the time to improve your credit score to increase your chances of being approved for a home loan.

» MORE: What is a good credit score for a mortgage?

Apply for a mortgage in principle

Before you start looking for properties and shopping around for a mortgage, it’s worth applying for a mortgage in principle.

A mortgage in principle (MIP), which is also called an agreement in principle (AIP), is a certificate from a lender that indicates how much they would be willing to lend you for a mortgage – the principle is based on the information you provide and does not represent a formal mortgage offer. They are generally used to show the vendor that you are potentially in a position to buy their property than you suggested.

A mortgage in principle isn’t legally binding – for the reasons above – but can significantly improve your buying power. It shows estate agents and sellers that you are a serious buyer and may boost your chances of having an offer accepted.

A mortgage in principle can last between 30 and 90 days. Depending on the lender, you may be able to renew the agreement after it expires or re-apply to arrange new terms.

Shop around

With so many mortgage lenders to choose from, shopping around and comparing can help you find the best deal.

A mortgage adviser, can help with the process by matching you with the most suitable lenders based on your financial circumstances. Mortgage advisors and brokers can charge around £500 for their services, but this can vary depending on the size of your mortgage. All independent advisors and brokers receive commission from the lender they place business with.

If you decide to approach lenders directly, always use an eligibility checker to help you find the deals where you are most likely to be approved. There are lots of free eligibility checkers available online and some mortgage lenders offer their own versions too.

Mortgage offers usually last from three to six months, depending on the lender. If your mortgage application is rejected, it’s best to wait at least three months before applying for another.

This is because making too many credit applications in a short time frame can suggest to lenders that you are struggling financially and may increase the risk of you being rejected again. This could negatively affect your credit score and make it more difficult to apply for a mortgage in the future.

If you are turned down, try investigating why your application was rejected by asking the lender. If they can’t offer an explanation, have another look at your credit history to see if there is anything you can work on to boost your chances of being accepted when you apply again.

» COMPARE: Mortgage rates and deals

Image source: Getty Images

About the authors:

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

Brean is a personal finance writer at NerdWallet. She covers a range of financial topics and has written for consumer titles including Which?, Moneywise and The Motley Fool. Read more

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