Buying your home could be the most important purchase you ever make.
Key steps when planning to buy a home
When you're buying a home for the first time, it can be difficult to know where to start. Here are a few things to keep in mind before you start house hunting:
Make sure you've fully thought through why it makes sense for you financially.
Consider if you'll still be able to manage your finances if interest rates go up.
Get a solicitor or licensed conveyancer to help guide you through the legal process. They'll explain what's happening and what to expect next, so make sure they're someone you feel comfortable talking to.
Your new home is the beginning of a new chapter in your life. Think beyond the move - for example, insurance and savings for a rainy day.
Think ahead to take out the stresses. Planning your new life in a new home is something to enjoy!
Planning ahead will help you make progress towards your goals and show lenders that you are prepared, which could make it easier for you to get a mortgage.
Unless you've sorted out your home-buying fund, you will need to start saving, cut down on any borrowing and make sure your credit record is as good as possible.
Build up a solid savings balance:
Mortgage lenders now require a deposit, usually a minimum of 5% of the property price. The more money you can put in as a deposit, the better the mortgage deal you can get. This could mean a lower interest rate.
Reduce your debts:
Most lenders work out how much you can borrow based on your outgoings as well as your income, so it's worth looking at any existing credit agreements you have to see if these can be repaid before applying for the mortgage.
Keep up to date with payments on loans and credit cards.
Check your credit rating with a credit rating agency such as Experian and Equifax to make sure it's accurate.
Remember, any missed or late payments will be reflected on your credit report and could stay there for years, so be sure to keep paying on time, even if it's just the minimum amount. Also make sure you cancel any unused store cards, credit cards and bank accounts.
What can you afford?
The checklist below is quick and easy way to help you work out how much you can afford to spend on your mortgage each month. Subtract your total spending from your total income and the amount left over might give you some idea of how much you could afford for your monthly mortgage payment.
Total - What you earn each month
Minus - What you spend on household commitments each month
Minus - Your everyday spending each month
Minus - Your occasional spending on things like holidays
Total available to spend on your mortgage each month
Extra costs when buying a home
Moving home is expensive and there are costs that we often forget but could have a real impact on your decisions. You can make things easier by budgeting for them.
You'll need a deposit, usually a minimum of 10% of the property price. Generally the bigger the deposit you have, the better the mortgage deal you can get. This could mean a lower interest rate. So the sooner you can start saving the better. Get started by opening a separate savings account and setting up a monthly standing order.
Many lenders charge an up-front fee for setting up a mortgage.
Mortgage Product Fees
Most lenders have a selection of mortgages with a product fee on certain deals.
Most lenders charge a fee for having the property you're buying valued.
Legal searches and fees
You'll need a solicitor or licensed conveyancer to take care of the legal details.
Higher Lending Charge
If you're borrowing a high percentage of the value of the property, the lender may charge a fee to take out insurance cover. This protects them in case you can't pay back your loan and they have to sell your house at a loss.
Stamp Duty Land Tax
This is a tax on buying property. You pay nothing for homes up to £125,000, 1% of the purchase price for homes from £125,001 up to £250,000, 3% for homes costing between £250,001 and £500,000 and 4% over £500,000.
You may be happy to hire a van and move things yourself. A removals firm will cost more but can make the whole process much less stressful.
Estate agent's fees
If you're also selling a house and decide to use an estate agent, they'll charge commission on the price your house sells for.
Don't forget buildings cover before you exchange contracts.
If your home has five bedrooms or less, our new Pick and Protect home insurance covers unlimited repair or rebuild costs.