Guide for First Time Buyers
Money makeover and credit score
Before you even consider buying a house or getting a mortgage. Ideally, you should make yourself as appealing to mortgage lenders as possible. You can do a lot of things to manage your credit profile that doesn't cost any money.
Get on the electoral roll; it verifies your present address, which is vital when mortgage lenders conduct credit checks. That is exactly what they will do. It's completely free.
Given that you are aware that your credit will be checked, it makes sense for you to check it beforehand. There could be minor issues on it that could derail your mortgage application or at the very least slow it down. Most credit score providers offer a free trial period. Credit Karma provides a continuous free service. They make money by advertising financial products. It is completely free.
Some things you should do or look for in terms of your credit score:
Examine the addresses in your file.
Break with previous relationships, which could include ex-partners or housemates.
Improve your credit score. You may have a low credit score if you have little or no credit history. Using a credit card that you pay off each month is a simple way to build a credit history. Make sure you don't get into debt, as this will only make matters worse.
It's mortgage application time. Our money's flow has a seasonal rise and fall. Most people look their worst in January, right after the big Christmas shopping spree.
You must pay your bills on time. If you aren't already, start right away and let your bad credit records work their way out of your credit score.
Other applications should be kept to a minimum. The act of other organisations checking your credit score has an effect on your credit score. Excessive activity raises red flags.
Never use a credit card to withdraw cash. It exudes desperation.
Some of the items on the list simply need to be corrected, while others require you to be more disciplined. If you improve your money management skills over a three to six month period, your credit score will look more appealing to mortgage lenders.
If you already have a high score, make sure to keep it up.
Mortgage products are available in loan-to-value (LV) bands, which are expressed as a percentage. This would be something along the lines of 100 per cent, 95 per cent, 90 per cent, 80 per cent, 75 per cent, and 60 per cent. All else being equal, the lower the percentage, the more options you will have and the lower the mortgage servicing costs will be. The LV is determined by the size of your deposit and the value of the property to be mortgaged. If you are close to the band below, you should spend some time trying to push yourself into that lower band. The savings could be substantial.
With money laundering being so closely scrutinised, you'll need to show where the deposit came from. If there is a clear money trail, it is acceptable for this to be a gift.
Mortgages are classified not only by LV but also by repayment type and mortgage purpose, as discussed in the deposit section. Because this is a guide for First Time Buyers, I'll stick to simple residential purchases.
The most common type of mortgage is repayment, which means that each monthly mortgage payment pays that month's interest as well as a portion of the mortgage loan. All mortgage loans will be repaid over the course of the mortgage, which is typically 25 to 30 years. Yeah.
Historically, interest-only mortgages were available, which reduced monthly payments by paying only the interest and not the principal. The expectation was that money would be saved elsewhere and used to pay off the mortgage at the end of the term (25 to 30 years). We'll leave this one alone because it's unlikely to be available to first-time buyers.
Then you get into the specifics of a repayment mortgage. These are classified as costs and benefits, and you can gain something by giving something away. The most common example is that you can fix or discount the interest rate for a set period of time, such as two, three, five, ten, or the life of the mortgage. If you want to leave the mortgage before the discount period is over, you must pay a penalty. This is usually a percentage of the mortgage, with the penalty amount decreasing each year and usually disappearing at the end of the discount period. Just make sure you understand the benefits and costs before signing.
Once I'd had a mortgage for a while, my favourite was an offset mortgage, which combines your mortgage debt, current account, and savings with a single provider to provide an overall balance for interest calculations. So, if you had a £100,000 mortgage and £10,000 in savings, you would only pay interest on the first £90,000 of your mortgage. The interest on this type of mortgage is calculated daily, so as your current account balance fluctuates, so does your daily interest charge. A great option if you have credit elsewhere, especially since interest rates on savings are currently so low. The main advantage of this type of mortgage is that it shortens the term of the loan, allowing you to pay off your debt faster and lowering the overall interest charged. You can play around with this calculator to see what it can do for you. https://www.moneysavingexpert.com/mortgages/offset-mortgage-calculator/
There is a professional and cost difference between using a solicitor and using a conveyance. A solicitor is a lawyer who can complete all of the legal checks and paperwork required for a property purchase, as well as other legal work. A conveyancer is qualified to perform all of the legal checks and paperwork required for the purchase of a home. The final result should be the same. Rachel is a member of the team that supports me and, by extension, you. If you don't already have a preferred provider, we can contact her to find one.
The mortgage provider will perform certain services and checks prior to making an offer. These are typically classified as administration and surveying, which is the process of valuing and determining the suitability of the property for which you are seeking a mortgage. These costs can be rolled into the mortgage. It also makes product comparison more difficult because administrative fees can be used to influence the initial interest advertised.
The mortgage lender will require building insurance. Some may insist on this being with a specific provider, while others may simply require proof. Building insurance covers the cost of damage to a building caused by an event such as a fire or flooding. Ensure that your insurance is in place at the time you take legal ownership of the property, your legal adviser has all of the dates you require. I have Rhian on speed dial who can provide you with advice on building and contents insurance.
Usually set up to repay the mortgage if one of the homeowners dies; a must-have if there are dependents. At this time, there are a variety of other insurance products to consider. They are all designed to protect income in some way.
This is to protect your belongings and should be tailored to your specific needs. This can include general home contents coverage, individual high-value items, and coverage away from home.
You will be required to provide proof of your identity, income, and deposit source at the start of the process. We will complete a fact find together at this time, and one of the most important parts of this exercise will be calculating your disposable income. Multiplying your joint income by 4 or 5 gives you a starting point, but significant outgoings elsewhere will eat away at the size of the mortgage offered to you. The affordability of a mortgage now and in the future is one of the lessons learned from the financial crisis. In this regard, mortgage lenders have a duty of care.
The government's website contains comprehensive information on rights and regulations. https://www.gov.uk/browse/housing-local-services