First time buyer’s guide to buying your first home
By Furness Building Society
How to buy your first home
So, you’ve decided you’re ready to buy your first home - exciting stuff!
But it can also feel pretty nerve-wracking. Don’t worry, while it’s a big commitment and needs to be taken seriously, it doesn’t need to be difficult.
If you need some mortgage advice, our ‘first time buyer’s guide to buying your first home’ will explain your options clearly and concisely and set out the main things you need to consider when buying your first house.
Your mortgage affordability
Can you afford a mortgage?
Take a long, hard look at your spending habits and assess how you spend your money. This is the first thing you should do and brokers and lenders, like us, can talk to you about this if you need some support.
You can book an appointment with one of our advisors, who will help you work out what mortgage payments you can afford each month based on your income and outgoings. The repayments need to be realistic for you to still have some money left over each month for household bills and any other commitments.
What deposit do you need for a mortgage
In order to get a mortgage, you’ll need a deposit. The total deposit you’ll need for a mortgage depends on the value of the home. Typically, you’ll need a minimum of 5% of a property’s total value.
Sometimes saving for a deposit can be tough. You may have financial help from your parents or grandparents, you may sell your car or simply may cut back on your spending. However you save, the bigger your first time buyer deposit, the better your mortgage options will be.
Do you have a good credit score?
Credit checks play a big part when applying for a mortgage. If you have a poor credit score, your mortgage application will likely be rejected. Fortunately, there are lots of things you can do to boost your credit rating so make a point of doing your research.
- Get on the electoral roll
- Get a copy of your credit file
- Check the address on your file is up to date
- Scrutinise for any errors and have them corrected
- Delink joint finances from past relationships
For help improving your credit score, take a look at our guide to improving your credit rating.
Mortgage fees and costs
What are the costs to consider when buying a house?
When you do your sums, you’ll need to take into account the full costs of buying a house and the fees you pay when getting a mortgage. Here we’ve rounded up the main costs to consider when buying a house - you should put some money to one side to cover these if you can.
Typical fees include:
- Arrangement fee - (also known as a booking fee or completion fee) - this is the admin cost to set up the mortgage loan. It can often be added to the mortgage so you don’t typically pay it right away.
- Valuation fee - this pays for an inspection of your new home and gives an estimated value of how much the property is worth. You need to pay this upfront as part of the mortgage application process.
- Survey - this is a thorough check of a home to spot things such as damp or structural damage. It’s optional but advisable, particularly if you’re buying an older property. You will typically pay this before you move into your new home.
- Legal fees - these are paid to your solicitor and covers the legal work associated with buying a home, such as conveyancing (the legal transfer of a property from one person to another). These are paid towards the end of the process when you have moved in - you’ll be sent an invoice from your solicitor.
- Stamp duty - this is the tax paid to the government when buying a residential property or piece of land (known officially as Stamp Duty Land Tax or SDLT). This is paid upfront while you’re in the process of buying the house although sometimes it can be added to the invoice for your legal fees from your solicitor.
- Moving fees - including the costs for a removal company or van hire to help you move your belongings into your new home. These are usually paid in advance of you moving or if not, immediately afterwards.
In addition, buyers are now being encouraged to consider the cost of making green improvements to their property over the next 10 years. According to a report from Rightmove, you can try and negotiate asking price discounts on homes with poor energy ratings to compensate for this.
By contrast, sellers who have already made changes that have improved the EPC rating (Energy Performance Certificate) of their home are adding as much as 16% to the price when they come to sell.
Do first time buyers pay stamp duty?
Whether or not first time buyers pay stamp duty can vary depending on where in the UK the property is located and what the purchase price is. If the home you're buying is £425,000 or less, then there is no stamp duty for first time buyers.
To help you work out how much you’ll need to pay, take a look at Money Saving Expert’s handy stamp duty calculator.
Who is considered a first time buyer when paying stamp duty?
If you’ve never owned a property or land, then you’re classed as a first time buyer. Note that if you’re buying with a partner then you both need to be first time buyers to qualify for any stamp duty exemptions. If you’ve inherited property then you won’t be classed as a first time buyer.
Ways to buy your first home
Are you getting a joint mortgage?
Most couples buy a property jointly and both names go on the mortgage and property deeds. This is known as a joint mortgage and you’re both responsible for the monthly payments.
Are you asking family to help you get a mortgage?
Many first time buyers have help from parents or grandparents with their deposit. But family can also be more closely involved. There are mortgages that take your parents’ income into account as well as your own and this can help you get a bigger mortgage. This doesn’t mean they’ll jointly own your new home but they will be jointly liable for the monthly repayments.
Are you a self-employed first time buyer?
If you’re self-employed or on a temporary contract, getting a mortgage can be tough. You’ll need hard evidence of your income in the form of two or three years of tax returns or business accounts.
While this can work for those in established businesses, it can mean those who have recently set up on their own might not be able to get a mortgage. If you’re self-employed and your partner isn’t, it may be only their income that counts.
Take a look at our self-employed mortgage guide for everything you need to know about getting a self-employed mortgage.
Are you using a broker?
A broker is a qualified and regulated mortgage advisor. A broker will approach us on your behalf to find a suitable mortgage that fits your credit history, personal circumstances and affordability. You may feel confident enough to go it alone which is great but if not, brokers can offer valuable professional help.
Take a look at our guide to using a broker to understand the benefits of using a broker and how to get the most out of the relationship.
Applying for a mortgage
Have you got a Decision in Principle?
A Decision in Principle (also known as an Agreement in Principle or AiP) is useful to have in a competitive property market. You'll likely be asked for one by a vendor (via their estate agent) before they'll accept your offer on a property. As a first time buyer, it'll generate confidence that your mortgage application will be accepted and the purchase will go through.
Top tip: See our Decision in Principle page for more information.
When do you make a formal mortgage application?
You need to have made an offer on a property and have had it accepted before making a formal mortgage application. Your mortgage loan uses the specific property you buy as security if you later can’t afford to make your repayments.
What paperwork do you need for the application process?
It’s a good idea to gather together all the information you'll need, so you don’t waste any time in the mortgage application process.
Typically this includes:
- Proof of income - last three months’ payslips or 2-3 years’ accounts if you’re self-employed.
- Proof of deposit - a bank statement and/or written confirmation from parents/grandparents that the deposit is a gift, not a loan.
- Bank statements - last three months’ worth.
- Latest P60 - showing income and tax paid from the last tax year.
- SA302 tax return forms - your self-assessment tax return if you’re self-employed.
- Identification - such as a passport.
- Proof of address for the last three years (if not on the electoral register).