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Five Top Tips on How to Buy Your First Home

Buying your first home can be a confusing and scary experience. Likewise, it will take much of your time when buying a house in UK. But once you have made the decision to own your own property, it makes sense to save as much as you can in order to get a better mortgage deal. Some banks and building societies will lend up to 95% of the property value, which means you will need a 5% deposit. However, in order to get the best deal possible, first, you have to look after your credit profile as this will determine how much you may be able to borrow.  Here are 5 top tips from TAB – a leading property investment company:

1. Look After Your Credit Profile

When it comes to borrowing money for a mortgage the most important thing you can plan for is a clean credit file. If you borrow money via credit card or personal loan and you miss even one payment, you could jeopardise being able to borrow the amount you need to buy a house – for up to 5 years!

Every payment is logged online and is visible by lenders on your credit file. You can look at this yourself and learn ways to improve it if you get it wrong (credit repair) as well as give you some valuable information on how to build a good credit score.

2. Understanding Your Deposit

A deposit is the amount of cash, savings, or contribution to the total cost of buying a house. The balance usually comes from a mortgage. The amount you can mortgage depends on the property value (usually capped at a percentage of this) typically referred to as Loan to Value (LTV). Loan to values tend to cap out around 90% but more frequently offered at around 75% and also a calculation multiple of your earnings or income or salary.

How much you may be able to borrow, the monthly repayments, the term of your mortgage and the different options offered by a mortgage provider or lender depends on proof of income, which would normally be in the form of a minimum of your last three most recent payslips.

For example, if you earn £25k pa you could potentially borrow approximately 4 x your income:

If you borrow £100,000 and repay it over 25 years with 3% interest, each month you will pay £474.21. Therefore, the total amount repayable will be £142,263.39, and the loan will cost you £42,263.39.  

3. What is a Mortgage

Simply put, a mortgage is a loan. Unlike many other loans (credit card, personal loan, overdraft) what makes this loan different is that it is secured against the property, meaning if you fail to keep up your payments the property could be sold by the bank with the first portion going to pay back the bank.

It is typically a loan of 25 years, meaning you have a long time to figure out how you are going to pay it back. You can make small payments each year to reduce the amount owed which over a long period of time will mean paying off the mortgage completely.

4. Understanding Different Types of Mortgages

Repayment Mortgage – this is by far the more common type of mortgage. In the first few years of your mortgage term, a bigger proportion of each monthly payment goes towards the interest and a smaller part towards the capital. With time, the balance shifts, with less going towards interest and more towards paying off your loan.

Interest-only – With an interest-only mortgage, you just pay the interest to your lender each month. You don’t pay off any of the capital that you’ve borrowed until the end of the mortgage term, at which point you have to pay the entire amount back in one go. Taking out an interest-only mortgage can be risky, as there is no guarantee that the money you’ve invested elsewhere will be enough to fully pay off the mortgage when the term ends. 

5. Associated Costs When Buying a Property

In addition to your down payment, there are other costs to be taken into consideration:

  • Survey and Valuation Fee
  • Local Searches Fee
  • Mortgage Admin Fee
  • Broker Fees
  • Solicitor’s Fees
  • Electronic Transfer Fee
  • Removal Costs
  • Exchange and Completion

Lastly, the exchange of contracts is when the buyer and seller’s solicitors exchange the signed contracts. Completion typically happens between 7-28 days after the exchange of contracts.

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