TOP TIPS FOR FIRST TIME BUYERS
Before you begin your property search you will want to know how much you will be able to borrow and how much it will cost you in fee's and monthly payments. A good mortgage broker will help you budget and prepare for this significant step. Below are some top tips for those about to embark on their first property purchase journey.
1. VISIT A MORTGAGE ADVISOR BEFORE YOU START YOUR SEARCH
Before you offer on any property it is a good idea to speak to a mortgage broker as early as possible as your broker may be able to highlight some spending patterns that could be limiting your maximum borrowing amount. This could give you time to change those habits to potentially increase your maximum borrowing amount prior to offering on a property. It also might highlight any genuine problems for you to address in the future.
Your broker will assess your income via the appropriate lender's affordability calculator. This can be extremely useful, as once you add your deposit on to this amount you will be able to work out what your maximum purchase price will be.
Later in the process your broker will be able to apply to a lender for an ‘agreement in principle’. This is where your broker inputs all your information to allow a lender to perform initial checks to confirm if you are likely to be accepted for a mortgage and the maximum amount they may be prepared to offer.
Another benefit of having a mortgage agreement in principle is that you can use it as a negotiating tool with estate agents. An agreement letter obtained by your broker from the lender satisfies two things most estate agents like to see. First it shows that you are prepared and serious as you have already got your lending part-approved. Second it will show that the amount you are looking to borrow (plus your deposit) is sufficient to afford the property. There is a potential downside to this in that by showing an estate agent the amount you could borrow might influence the negotiation process.
When you have agreed a price on a property you do not have to use the lender from which you obtained your decision in principle. This could be for a variety of reasons, but your broker should go back to the open market to look for the best deal for you and your needs at the time. But if the original lender has the best option for you then the application is already well underway.
Lastly, engaging your own mortgage broker means you do not have to use the in-house adviser in the estate agents. There is no legal requirement for you to use anyone but having a third party outside the estate agents or solicitors may provide you with another perspective you might find useful.
2. IMPROVE YOUR CREDIT SCORE
Your credit score also takes into account how ‘stable’ your lifestyle is. Your lifestyle is deemed more stable by lenders the longer you have been with the same employer, lived at your current address and have had your current bank account. A personal loan or other regular payments, even a mobile phone contract, also work to improve your credit score by proving that you are able to maintain regular outgoing payments. They will use this information to decide whether or not to offer you a mortgage, so it’s really important that you look at ways you can improve it first, including making sure you always make debt repayments on time, and shutting down credit card accounts you no longer use.
You can get hold of a copy of your credit report from one of the credit reference agencies Experian, Equifax or CallCredit. Check to see the information they hold on you is correct. If you’ve never borrowed before, it’s a good idea to take out a credit card and pay off the balance in full each month, so you can prove to lenders that you’ve got a track record of successfully repaying debts.
Most lenders verify your identity electronically nowadays. Being on the electoral roll counts a fair bit towards identifying who you are and your ‘credit score.’ This may simplify the process of providing proof of address and ID to your mortgage lender and could prevent you from having to go through additional identity checks before your application can progress. If you aren’t, you can sign up online at www.gov.uk/register-to-vote.
3. GET A CREDIT CARD
It may seem strange to suggest that borrowing money will help prove to lenders that you can afford a property, but this is an important tip due to the way many of the biggest lenders assess mortgage applications. They use a process called credit scoring to help assess your ability to responsibly handle credit. This essentially works on a basis that assumes you cannot handle credit until you prove otherwise. Regularly using and repaying a credit card is a great way to boost your credit score and demonstrate to lenders that you can handle credit.
I recommend if you don’t already have a credit card that you get one, use it for some small, normal purchases and set up a direct debit to pay the balance in full each month. The credit card’s interest rate won’t matter as by paying in full each month means you won’t be incurring interest or any additional charges. Don’t forget that you will need to make some purchases on the credit card each month for it to influence your credit rating. Do not ‘run it up’ so that you cannot keep up payments on it and bear in mind that regular commitments will likely be deducted from net monthly income for affordability purposes.
4. CONSIDER YOUR DEPOSIT
The bigger your initial deposit on a property, the lower the mortgage rate you are likely to qualify for and the lower the minimum credit score you may need to be accepted for the mortgage. There is an especially large jump in interest rates for borrowers with lower deposits like 5% or 10%. Therefore, if you think you could afford to pay a slightly higher deposit of at least 10% of the overall property value, then it could be very beneficial when it comes to securing a cheaper rate and therefore lower payments.For more information and advice on your options, feel free to contact us
5. LOOK INTO GOVERNMENT SCHEMES
You may qualify for the government’s Help to Buy scheme which aims to assist first-time buyers. This involves you putting in a 5% deposit, and the government loaning you 20% free of interest for the first five years (if you live in London, you can get a loan for up to 40% of the property value).
The Equity Loan Help to Buy scheme is available until 2021 and is only available if you are buying a new build property costing up to £600,000 and only own one property.
Alternatively, you might qualify for a shared ownership scheme, whereby you buy a share of your home and pay rent on the remaining part to a housing association. Your household must earn £60,000 or less to qualify, or £71,000 a year or less if you’re living in the capital and buying a one or two-bedroom property.
Whether you are a first-time buyer just starting to look at your options, or you’re a parent guiding your child through purchasing their first home, it’s extremely important to know all that is available to you. That’s why talking to a mortgage broker like Morgages by Moneybrain will allow you access to a mortgage deal that suits your requirements, lifestyle and affordability.
For more information and advice on your options, feel free to contact us