The complete guide to buying your first home
Thinking of buying your first home but not sure where to start? Here’s a simple, step-by-step guide to the process.
Last updated on
Jun 17, 2022 10:55
Thinking of buying your first home but not sure where to start? Here’s a simple, step-by-step guide to the process – from sorting your finances, to viewing properties, to getting the keys to your new home.
If you’re like most people, you’ll need a mortgage to buy your first home. To get one, you’ll have to show your lender that you can:
To begin with, there are two things you need to focus on in order to do this:
A mortgage is a lot of money. (Not surprising, we know.) So before a lender agrees to lend you that much, they’ll want to make sure you’ll actually be able to pay it back.
So before they make you a mortgage offer, a lender will look at your credit report, which shows how you’ve handled money in the past. That report is summed up in a single number: your credit score.
Building, improving and maintaining your credit score takes time. This means the sooner you start, the better. We’ve written a guide on how to improve your credit score, but in the meantime, here’s the short version:
Your debt-to-income ratio shows how much of your income you use to pay off debt.
As part of your mortgage application, lenders carry out what’s called an ‘affordability assessment’. They’ll look at your income to see how much of it goes towards expenses – bills, credit card debt, your car loan, your student loan, and other outgoings, like groceries. This tells them how big of a mortgage repayment you could afford and still live comfortably.
The higher your debt-to-income ratio (so the more of your income you use to pay off expenses) the less you’ll be able to borrow. So, it’s important to get a handle on your debt before you apply. For example, you could:
Before you start viewing properties, find out how much you could borrow. It’s good to have a realistic amount in mind, so you don’t risk getting your heart set on a house only to find out you can’t afford it.
There are a few ways to get an idea of what you can borrow:
Once you find a deal you like, it’s worth getting a mortgage in principle or applying for an agreement in principle.
A mortgage in principle (MIP) is a basic check of how much you can afford to borrow. You can get one by speaking to a lender or a broker – you won’t be credit-checked for that.
By contrast, an approval in principle (AIP) is a statement from a lender confirming they’d be prepared to lend you a certain amount of money. To get one, you’ll usually have to send the lender some documents, like proof of your income. You’ll also have to go through a credit check. The upside is you’ll have a more accurate estimate of how much you can afford to borrow.
A mortgage in principle or approval in principle don’t guarantee you’ll get a mortgage. You’ll still have to go through a credit check and affordability assessment before you get your mortgage. That said, an MIP and AIP do show sellers you’re a serious buyer. That can be an advantage, especially if you’re bidding on a house that has a lot of interest.
In Scotland, you have to have an agreement in principle to make an offer.
You can borrow up to 95% of a house’s value. So, for example, if the house you want to buy is worth £150,000, you’ll have to pay at least £7,500 (5%) out of your own pocket.
Of course, if you can afford to put more towards your deposit, that’s usually better. A bigger deposit means you’ll need to borrow less, which could make your monthly mortgage payments lower. (This won’t be right for everyone of course, but is usually the case.)
Plus, banks like it when your mortgage is a smaller fraction compared to the property value, and start to offer you lower interest rates. That’s called your loan to value or LTV – you can read more about LTV here.
Here are a few tips to help you save for your deposit:
Deposit aside, you’ll also want to save up for other costs. These include:
Your lender’s fees. Depending on the lender and your circumstances, you may have to pay one or more of the following:
Home survey fees. You don’t have to do a home survey, but it may be well worth the money, especially if you’re buying an older property. Your lender will get a valuation survey for the property, but that only confirms on a basic level whether the house is worth what you’re paying for it. A home survey, on the other hand, will find out whether there are any problems with your home before you commit to a mortgage. In 2015, one in four sales fell through because the home survey uncovered serious issues.
Solicitor’s fees. You’ll need to hire a solicitor to handle the legal side of buying a property. This is called conveyancing. In Scotland, you can only make a formal offer on a property through a solicitor, so you’ll need to find one before you even start looking at houses.
Stamp duty. This is a tax you pay when you buy a property worth £125,000 or more. Right now, there’s a stamp duty cut until 31 March 2021 – you’ll pay no stamp duty for homes up to £500,000. See how that affects you. If you’re buying in Scotland, a different system called Land and Buildings Transaction Tax applies.
The difference between the house’s value and the purchase price. In competitive markets like London and Edinburgh, you might pay more than the house is actually worth to secure it. But the bank will only lend against its value, so you’ll need to pay the additional cost yourself. Let’s say your home is valued at £150,000, but you’re putting in an offer for £160,000. Your lender will only lend you 95% of £150,000. So, you’ll need to pay at least 5% of £150,000 (that’s your deposit), plus the £10,000 you offered over the value of the property.
Once you’ve got your finances in order and started saving for your deposit, it’s time to get serious about house-hunting.
You can look up properties and book viewings online using a website such as Rightmove or Zoopla. Or, you can speak to an estate agent.
Saw a house you like? It’s time to make an offer.
But how much should you offer?
Here are a few tips:
You should also think about what kinds of terms it’s worth putting in your offer. In particular:
If your offer is accepted, it’s time to go ahead with your mortgage application. We’ve put together a comprehensive list of the documents lenders tend to ask for. Here’s a short version of that:
The lender will make their credit checks and do an affordability assessment at this stage. They’ll also carry out a valuation survey on the property to make sure it’s worth what you’re paying for it. If everything goes well, you’ll receive formal notice, usually a letter in the mail, confirming your application has been approved.
It typically takes between three to six weeks for the lender to process your application. But it may take longer in some cases. For example, if the surveyors are unusually busy, it may take them longer to do the survey and complete their report.
While your lender is processing your mortgage application, your solicitor will be carrying out searches on your property. These include:
Local authority searches. These uncover issues such as:
Drainage and water searches to confirm the house is connected to the sewers, what the water billing arrangements are and whether the house is at risk of flooding, damp or other issues
Environmental searches. These searches look at past use of the land the house is on and find out whether there are issues you should be aware of, such as contamination
In the meantime, it may be a good idea to book a home survey with a RICS-certified surveyor. They’ll look over the house and write a report outlining any issues you should be aware of.
Your mortgage has been approved, your solicitor is happy and the home survey gave the house a clean bill of health. Great! It’s time to swap signed copies of the contract of sale and get your keys.
But first, you have to pay for the house.
You don’t pay the seller directly – your solicitor arranges the payment. So you’ll need to transfer your deposit money into the solicitor’s client account. The solicitor will then forward this money to the seller (or, if the seller has to pay off their mortgage, to their bank). And, they’ll make sure your lender pays the rest of the purchase price.
Most banks won’t let you transfer more than £10,000 a day. So if your deposit is larger, you’ll have to arrange a CHAPS payment. CHAPS payments go through on the same day. But unlike a normal bank transfer, they cost around £25 to £30. Your solicitor will also speak to your lender to arrange the transfer of the money you’ve borrowed.
Once you exchange contracts, the sale becomes legally binding, which means neither you nor the seller can back out. You’ll now need to:
On completion day, you’ll officially be a homeowner.
And there you have it.
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