Getting your foot on the property ladder could prove to be the most difficult step of your life. Therefore it is important that even in the initial stages, you are well-prepared and aware of what the journey could entail.
As the economic climate grows cloudier and the housing market remains unpredictable, first-time buyers may find themselves facing a greater and more dangerous challenge than in previous times. The risks are prominent and buyers could find that they do not have a lot to fall back on. However thorough preparations and careful forecasting could help to avoid stumbling blocks along the way.
This guide identifies ways that you can ready yourself financially for the big step before you even start looking for your perfect home.
1. Plan ahead
The first slip-up that many people make is simply not planning far enough ahead. This is not to suggest that you should start thinking about mortgages from your early teens. But many buyers may face issues with mortgage approvals due to poor credit scores because of youthful mishaps that occurred purely because they were not aware of the effect that they would have.
Your credit score and borrowing history will be extensively scrutinised by mortgage lenders and the best deals tend to go to those with the best credit ratings. Therefore a degree of credit savviness from the moment you start borrowing could serve you well. Avoiding borrowing at all will not benefit you as lenders like to see that you are a responsible borrower with a good credit history. Therefore ensuring that you pay off your debts on time and avoid late fees and charges could help you.
It is also important to check your credit report regularly to ensure that you know how you are doing. This also helps you remain aware of anything that is incorrect or fraudulent and challenge it accordingly.
2. Do your preparation
Mortgage lenders like buyers who are responsible and prepared. Therefore ensure that you are well-organised for any meetings with lenders. Keep hold of important financial documents such as recent payslips and bank statements so that they can build a good picture of your income. Also make sure that you are on the electoral register as this will show stability of your address.
Try to show that you are in a secure financial situation. A stable job and income combined with a good-looking credit history could help to boost your chances.
3. Stabilise your savings
In current times, saving for your mortgage is more important than ever as because of the housing marketâ€™s weakness, lenders are looking for larger deposits than ever. In simple terms, the bigger deposit that you can raise, the better the deals available to you may be.
Typically lenders have asked for at least 10% of the property price as a deposit but currently the best deals tend to go to those who can offer deposits of around 15% to 20%.
Consider the best savings options in order to look after your mortgage fund. Fixed rate bonds can work well if you are looking to maximise returns on your savings as they tend to offer the highest interest rates and you are usually unable to dip into your savings for the duration that they are locked away. Tax-free cash ISAs could be another option for your perusal.
A standing order transfer of a set amount of money into your savings account each month over a substantial amount of time could show lenders that you are able to meet monthly payments.
4. Reduce your debts
In addition to a good savings pot and income, lenders will look at your outgoings in order to build up a clear picture of your finances. By paying off existing debts, you will also free up additional contributions to your mortgage savings fund.
Decrease your outgoings where possible and examine your standing orders; if there is anything there that you are paying for but no longer using, consider cancelling it.
5. Think about what you can afford
Weâ€™d all like a four-storey house with a heated pool and white picket fences. However it is important to do your research and gauge a realistic idea of what you can afford so that you can plan your monthly budget.
The first question that many lenders will ask is â€˜what is your price ceiling?â€™ – the maximum that you can afford to spend. It is important that you are clear on this as it could be a key aspect to the lenders.
You can use mortgage payment calculators to help determine an idea of what your monthly repayments. It is also advisable to speak to a mortgage advisor in the early stages as they can offer you relevant guidance on the options that may be available to you.
6. Donâ€™t forget the extras
Many people fall into the trap of thinking that buying a house is as simple as just considering the price of the house itself. However the process tends to incur a number of additional costs such as conveyancers and solicitorsâ€™ fees, stamp duty tax and potential renovation costs. Also consider the price of insuring your house as this is fundamental.
Building a clear picture of all possible payments can help you to build an accurate budget and ensure that you are fully prepared.
7. Speak to the professionals
Before you start hunting for your perfect home, it is important to ensure that you are financially prepared for the journey ahead. In addition to discussing your mortgage options with you, mortgage advisors can also equip you with financial advice throughout the process.
This post was written by John Hughes who is the resident blogger at www.independentfinancialadvisor.co.uk, a UK based site that provides access to financial advisors as well as to debt advice charities for those struggling with their debts.