First and formost, I’d like to say that everybody should save up money, not just the first-time homebuyer.
Based on my experience, it’s better to have money tucked away for rainy days. Even if that rainy day doesn’t come, it’ll come in handy when you want to buy or invest in something later on in life. Trust me on this.
Going back on topic, a first homebuyer should save up as much as he can, because nobody can buy a house without cash on hand. Friendship or goodwill won’t secure a roof over our heads, but money will.
The most common practice for first timers is to save up at least 5 to 20 per cent of the total price. For example, if you want to buy a home costing £150,000, you’ll need to save at least £7,500. I do strongly recommend for first timers to save up more than 5 per cent, though, since buying a house isn’t just about paying the total price of the house. There are other expenses that you have to prepare such as:
- Mortgage arrangement and valuation fees
- Stamp duty (or Land and Buildings Transaction Tax in Scotland)
- Solicitor’s fee
- Survey cost
- Removal costs
- Initial furnishing and decorating costs
- Buildings insurance
The added savings not only helps first timers to pay for these extra costs, it also helps them secure better mortgage deals with the lenders.
Can you really afford a home?
How does one know if he really can afford something that he wants or needs?
In case of houses, buyers can’t just rely on their cash on hand, to determine if they can buy something or not, just like in ordinary purcashes. They also have to compute their future earnings against any future contigencies that they may have to spend for like increase in interest rates and the cost of basic commodities, the kids’ schooling, or hospital expenses.
Even if you don’t know how to compute these future costs, lenders will subject you to a so-called “stress test” when you apply for a first time buyer mortgage. In this “stress test,” lenders check if potential customers can still afford to pay their monthly mortgage amortizations even if these future contingencies are factored in.
To do this computation successfully, mortgage applicants turn in proof of their income source and other documents stating a person’s current payables like utility costs.
Finding the right mortgage
There are a ton of fist time buyer mortgages available out there. Some may even say that now’s a great time to become a first home buyer, because of the wide range of mortgages that first home buyers could choose from.
Even the government is helping out first home buyers by funding mortgage schemes catered for these demographic. There were similar schemes like these, back in the day, and it actually helped me purcahse my first house.
Whatever mortgage you end up with, always keep in mind the saying that “never bite off more than you can chew.”
Remember that buying a house is one of the cornerstones of financial security, and going through the process shouldn’t leave you bankrupt in the end.Tags: first home buyer, first time buyer mortgage, first time buyer mortgages, first time buyers, first time home buyer