Buying a home will probably be the most significant purchase of your life and is not something you should do without preparation. Before you start on the road to homeownership, make sure you are ready.
Here we’ve outlined six steps to take before buying a property:
A high credit score will help you bag the best mortgage deals. A poor or average credit score could greatly affect your chances of being approved for a mortgage altogether as lenders will see you as an unreliable investment.
Check your score for free with all three credit agencies (Experian, TransUnion, and Equifax), and make sure everything is accurate and you’re not penalised for old, paid or settled debts.
If you can, stop applying for new credit a year before you apply for a mortgage – in the main, that means loans and credit cards. The last thing you want is to look like you’re desperate for credit.
There are various ways to determine what you can realistically afford, and also how much lenders are willing to give you.
Look in depth at what you earn compared to the amount you spend and see if there are ways for you to budget and save more to put towards your deposit.
The bigger the deposit, the better the rates and the more affordable your monthly payments.
These days you’ll need to save up at least 5% of the house price for a deposit. If you can, look to save 15 to 25%, depending on your credit history, the mortgage type, and the purchase price of the property.
If you find a home that’s eligible for one of the government’s Help to Buy schemes, you may be able to buy a property that’s worth more even with a small deposit.
Another huge cost is stamp duty along with other mortgage and brokerage fees. The amount itself depends on the value of your new home, and whether or not you’re a first-time buyer. Use our stamp duty calculator to work out how much you’ll need to pay.
Since November 2017, all first-time buyers buying a property worth up to £500,000 are exempt from paying stamp duty on the first £300,000. So, as a first-time buyer purchasing a £500,000 house, you’ll need to pay £10,000 stamp duty. If property is worth more than £500,000, you’ll have to pay stamp duty as usual, even if you’re a first-time buyer.
Mortgage, survey, and brokerage fees can cost anything from £1,000 to more than £2,000.
This is an important step because lenders want to know you’re not living payday to payday. Having three to five months of mortgage payments set aside in savings is ideal and makes you a much better loan candidate.
It shows you know how to budget – plus, should any big-ticket fixes such as a new roof or boiler suddenly crop up, you’ll be well prepared!
A good rule of thumb is to assume that you’ll spend up to 1% of your home’s value each year on upkeep and repairs. If you buy a £400,000 home, try to put away £300 to £400 per month if possible. On top of your mortgage repayments, that could be unmanageable, especially if you’re buying alone, which is when homeowners insurance could really come into its own.
Once you’ve sorted your finances, calculated how much you can afford and decided on the kind of property you’d like, you need a mortgage agreement in principle (AIP).
Although not an official mortgage offer, it’s a worthy agreement between you and a mortgage lender that says they’re willing to lend you a certain amount towards a property. Most estate agents won’t even consider an offer you put on a house without one.
Just five words: “Buy the home you want”, but this step is by no means a quick nor a simple one. You need to think as long term as possible because when it comes to home ownership; short-term decisions can be very costly.
Buying a tiny one-bed flat now simply to get on the housing ladder may not be a wise decision if you think you’ll outgrow it in a year or two, especially with the current state of the market.
Recent statistics show that second-steppers have been hardest hit by the slowing housing market. According to media outlet This Is Money, 60% of second-steppers say moving up the ladder is proving harder than getting onto it in the first place.
Edited by: Sarah Guershon
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Last updated: 10 March, 2021