Budgeting – many first-time home buyers skip this first and crucial step in the cycle of buying and selling houses. People are so caught up with saving money at the beginning of the sale process that they forget about the other expenses (especially the hidden costs) down the road.
I highly suggest making a budget of how much money you’ll need from start to finish, so you won’t feel like you’ll need to sell an arm and leg just to pay off your house. If you’re unprepared for this herculean financial obligation, then I highly suggest to postpone your plans for a few years more.
As early as now, you have to gather proof of income, any outgoing expenses including debts, household bills; and other living costs such as clothing, childcare, and travel costs. To prove your income, you may have to produce payslips and bank statements. If you are self-employed you could be asked for tax returns and business accounts prepared by an accountant.
You’ll also have to make a financial plan on how you’re going to deal with any financial stress in case of unforeseen events like: possible retrenchment at work or suddenly having kids. Make sure that even when these events happen, you’ll have a back up source of funds to cover for the monthly mortgage payments.
Back in the day, such extensive preparations weren’t as important as they are now because laws on lending were more relaxed. Unfortunately, the game has changed. Starting last year, banks were mandated by law to implement stricter lending requirements on every mortgage application, so there’s really no option for everyone but to comply.
The next part of every first time home buyer’s journey is saving money. Traditionally, people save at least 5 to 20 per cent of the price of the home they want to buy. So for example, you’re planning to purchase a £150,000 property, you’ll need to save at least £7,500.
Personally, I recommend saving up a larger amount, because it could help you qualify for a wider range of cheap first-time buyer mortgages. When my daughter was buying her first home, she barely saved 5 per cent of the house’s full purchase price, that’s why it took a few months or so to find a lender that granted her a home loan.
Another reason why you should save more than 5 per cent is because of the long list of additional costs you’ll have to spend on when buying a house. Aside from paying the deposit, you’ll also have to pay for the following:
- 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
- Building insurance
So if you only have enough to cover for a 5 per cent deposit, then it’s going to be tough for you to move in the house right away.
I’m not promising that you won’t experience any hiccups if you follow these suggestions, but following these tips might just help you lessen the heavy burden of buying a house in the UK.
Tags: buy a house, buying a house, first time buyer mortgages, first time home buyer, first time home buyers
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