If you are a first-time buyer, buying a mortgage may seem a daunting task. From arranging a deposit to maintaining a good credit report and finding your new home to pursuing the application process, it takes time and efforts. Getting onto the property ladder seems to be very exciting as you are close to having your dream house, but the risk of losing it in case of default make you feel perturbed.
You might not be lucky enough to have enough money to purchase a home, which is why mortgage for first-time buyers can help you get a foot onto the property ladder. This blog discusses how you should finance your home.
Arrange your finances
When you apply for a mortgage from Shine Mortgages, the lender will look over your financial situation, affordability, and other income sources. This examination will help them decide the amount they can afford to lend you. First-time buyers require a deposit of at least 5%. However, the higher the deposit size, the lower the interest rate will be. The average loan-to-value for first-time buyers is 82%, compared to 74% for home movers.
As you can see the average age of first-time buyers to take out a mortgage is 31. It is necessary that you arrange the deposit size as soon as possible.
Find your new home
The deposit size will be 5% of the value of your house and hence you should start to look for your house as immediately as possible. You must have an estimated budget of how much you can afford investing in your house because the mortgage will ultimately depend on your affordability and further it is a waste of time looking for property beyond your budget.
Make a list of areas where you would like to buy a property and compare market rates. The prices may vary depending on amenities available.
Look into your credit file
A direct lender will approve your mortgage application if your credit score is good. Buyers with bad credit rating are likely to be turned down or they will end up paying high-interest rates if approved. Make sure that your credit file does not consist of an error that pulls your credit score. go through your report to spot errors like incorrect contact numbers, your current address, account information and employer details.
Get pre-approval before hunting house
Before you start your house hunting, you need to have a pre-approval agreement with a mortgage lender. This is called agreement in principle (AIP). In this written statement, the lender explains how much they may lend you on basis of your affordability and creditworthiness. It is not a formal offer to buy a mortgage.
You will need an AIP before you make an offer on a property, otherwise, property agents will not take you seriously. You can get AIP online by submitting information related to your incomings, outgoings and the estimated deposit size.
Use help to buy equity scheme
All mortgage lenders require you to submit the deposit size of about 5%. However, if your credit rating is poor, you are likely to be asked to submit a bigger deposit size. It may expend up to 15%.
However, not all direct lenders sign off on a mortgage deal even if you have the minimum deposit size for one reason and other. If you have been working harder to buy a house as a first-time buyer, you should enrol in a help to buy equity loan scheme.
You can avail this scheme as long as the value of your house is not more than £600,000. You can borrow up to 20% of the total cost of your house as you have already 5%v deposit size. It means the loan-to-value will be 75%. For the first five years, you will not be paying interest on the 20% loan amount borrowed under the scheme.
Choose the type of mortgage carefully
A direct lender may provide you with two types of mortgages: fixed-rate and tracker rate. The former will keep your monthly payments fixed for two, three or five years depending on the policy of the lender. Once the fixed-rate deals come to an end, your repayment plan will switch to the standard variable rate. The latter tracks the base rate of Bank of England and hence the interest amount can go up and down every month. Each type of mortgage has its own benefits and drawbacks. Make sure that you have analysed which will fit your budget.
The bottom line
If you are looking forward to buying a mortgage as a first-time buyer, you will have to be careful with your deposit size and credit history. With a higher credit score and deposit size, the loan-to-value will go down, which means repayments will be easily manageable.