Buying your first home can be a nerve wracking experience. It is an exciting time when you first consider becoming a homeowner for the first time, but it is such a big investment and there is so much weight around it financially that it can be a bit of a scary experience.
They do not teach you about the process of becoming a homeowner in school, and so when it comes to taking the leap you can feel a bit anxious, confused, and simply like you just don’t know enough about what it takes to become a homeowner.
We know how you feel, and it is okay to feel really mixed feelings about taking this step in your life. But, it doesn’t need to be so overwhelming. That is why we are going to provide you with this complete guide to buying your first-ever home. We will discuss all the ins and outs of the process for you, and help you on your way to becoming a homeowner.
Table of Contents
- The Basics of Mortgages
- First Time Home Buyer Tips
- Step-by-Step Guide to Buying Your First Home
- Save for a Mortgage Deposit
- Find Out How Much You Can Borrow
- Research the Area you are Looking to Buy From
- Apply for a Mortgage Agreement
- Register with Estate Agents
- View Potential Properties
- Make Offers on Houses or Flats
- Apply for the Mortgage
- Find a Conveyancer or Property Solicitor
- Acquire a Property Survey
- Research Removal and Moving Companies
- Acquire Home Insurance
- Exchange and Sign Contracts
- Move in
- Other Costs Involved When Buying A House
The Basics of Mortgages
First thing we need to talk about is mortgages. When you’ve never taken out a mortgage before, and you have little knowledge of how they work, it can feel a bit scary. Thinking about mortgages for the first time can be a little bit intimidating, but do not fret, the truth of mortgages is not as intimidating as they may seem.
Mortgages are loans that are taken out to buy land or a property. Most mortgages run for 25 years, however, the term can be shorter or longer than this. To get a mortgage you will want to save up to 5% or more of the purchase price as a deposit, and then you borrow the rest of the money, aka the mortgage, from a lender such as a bank.
This type of loan is secured, so it is secured against the value of the home until you pay off the mortgage. This does mean that if you cannot keep up your repayments, then the lender can actually repossess your home and sell it so that they get their money back.
You will typically replay the loan plus interest over a period of time, which can be anything up to 35 years. Mortgages are the biggest and most expensive financial product that most people ever take out.
This is why it is so important that you understand the terms, and you pick the right mortgage for you.
First Time Home Buyer Tips
Mortgages are a big part of buying a home, however, they are not the only part of buying a home. There is much to consider when you go to purchase a home. Of course, many people will focus on the mortgage at first, simply because it is such a large financial aspect of becoming a homeowner.
There is much to consider as you get the mortgage, but also much to consider beyond the mortgage as well. Pay attention to our list and make sure you think about all these things before you purchase a new home.
Make Sure You Can Afford Monthly Payments
As with any loan, you need to make sure it is a viable option for you. This does not mean just making sure it fits what you are looking to buy, but also ensuring that you can actually pay off the mortgage.
As a first-time buyer, the most important thing you should bear in mind is if you can actually afford to take this step. Start putting together a budget before you start property hunting, and set yourself a maximum amount you are willing to look at.
So, for example you could focus on houses below $100,000, and start saving, then not look into finding a place until you have saved $10,000, so you are nice and secure. Think about how much you will be able to afford per month as well, keeping in mind you will still need to cover everyday costs too.
Budget the Other Costs Involved in Purchasing a Property
Remember that we said mortgages are not the only part of purchasing your own home that matters. Well, mortgage payments are not the only costs you need to think about. Aside from the monthly payments you will need to think about, there are many other costs you need to consider too.
These include; survey costs, solicitor and conveyancer fees, mortgage arrangement and valuation fees, removal and moving costs, insurance, decorating and furnishing, stamp duty costs.
As you budget to save for your move into a new home, do not only take mortgage payments into consideration, you should also consider the many other aspects of buying a home. It’s all well and good ensuring you can pay off the mortgage, but if you do not have enough money to decorate or pay for moving costs, then you will find everything more difficult. Take everything into consideration, and budget for everything.
Use Mortgage Comparison Websites
There are many ways to take out a mortgage, you can get a mortgage directly from your bank for example. However, you might also want to consider using a regulated mortgage adviser, these advisers know a lot about the mortgage market, and they can help you find a mortgage that best suits your needs
Doing this is valuable for those who only have a small deposit, are self-employed, and if there are any issues around the type of property.
However, another alternative is to utilize mortgage comparison websites. These are a fantastic starting point for comparing mortgage interest rates. You can use websites to compare mortgages and give yourself a better list of options. There are many of these available online, so there is no shortage of where to look.
‘Loan to Value’
When people discuss mortgages, they may mention ‘LTV’. This is simply in reference to the amount you have borrowed to buy your home in comparison to the mortgage lender valuation of the property. So, if you were to buy your home for $200,000, and you put down a deposit of $20,000, therefore leaving you with a mortgage of $180,000 then your LTV is 90%. It is this because this is the amount that you have borrowed.
It is just a bit of basic mathematics. And, the lower that your LTV is, the lower your interest rate will be, as a lender will be taking less risk with a smaller loan. So, if you can, it is worth it to save up for a home, and then give a higher deposit, so your interest rate is smaller.
Step-by-Step Guide to Buying Your First Home
Already we have covered some of the essentials to buying your first home. Buying a home is complex, and it can be a long process. However, once you have got a grip around the basics, you won’t be taken by surprise, and it will feel so much easier.
Now, since we’ve covered some of the more important aspects of getting a mortgage, let’s walk you through the process. Take note, and you will do just fine.
Save for a Mortgage Deposit
The first step you want to take is to start saving up for your mortgage deposit, of course the more you can save the better. The deposit should be at least 5%, so find the maximum amount you want to spend on a property and save 5% of that. So if you set a limit of $140,000 for a home, then you would need to save a minimum of $7,000.
It is worth saving as much as you can, if you can bear to wait longer, as a bigger deposit allows you to apply for mortgage deals that have lower interest rates.
As a first time buyer, it is always best to save as much as you can so that you can get a better mortgage deal, and lower interest rates, it will also look better to lenders if you put in a higher deposit too.
Find Out How Much You Can Borrow
Once you have figured how much to save, and have started with your savings, you want to get an idea of how much mortgage you can borrow. The amount a mortgage provides you will be happy to lend you will depend on a variety of factors, as well as the lender themselves.
It can depend on the size of your deposit, your income, as well as your credit score, so it is also wise to check your credit score before you go looking for a mortgage.
If you are buying with another person(s) then remember that the lender will be taking their finances into account as well.
Always budget for the additional costs of buying a property as well,
Research the Area you are Looking to Buy From
If you are thinking of moving away from your local area, explore the towns or neighborhoods that you are considering moving too. It is always worth getting a hotel or a B ‘n’ B and checking out the public transport lines, shops, restaurants, and people in the area.
Even if you are familiar with the area, it is well worth doing some digging into the area that you want to move to before you sign any paperwork and make a finalized decision.
Think about things such as schools, transport links, local infrastructure plans and potential development projects in the area, flood zone, development applications, and crime levels. Always consider these things, so you know what you are getting into when you move to the area.
Things such as new factories might devalue the property, whereas property development can increase value. You also do not want to move to a new area just to find out over the winter months that flood risks are really high.
Apply for a Mortgage Agreement
Once you feel comfortable with the area that you wish to move to, and you have an idea of how much deposit you need and have started saving money, as well as around how much you can expect to get from a lender for your mortgage, it is now time to apply for a mortgage agreement in principle.
This is a confirmation from a mortgage lender that, in principle, they would be willing to lend you a certain amount. It can also be a decision in principle or a mortgage promise.
Having this can make you a more attractive buyer, so it is definitely worth it.
Register with Estate Agents
So, you have chosen the area where you are interested in buying now, and so it is time that you register with local estate agents in your chosen area. Registering is free, and it doesn’t create any obligation on your behalf.
Staying in touch with local estate agents can increase your chance of finding your ideal home, this is because agents will sometimes contact registered buyers before they list a property online. So, you could get yourself a sweet deal this way.
While you may find it ideal to shop around on your own first, an agent can give you that key advantage in finding the home you want and dream of having. It is well worth doing and can benefit you greatly in your home hunting.
View Potential Properties
Let’s not joke around, this is probably one of the favorite parts of shopping for a new home for most people. It is time to look around at potential properties. You will undoubtedly spend plenty of time shopping around online, looking at houses and finding out what kind of houses are available in the area, while this is great fun, online is never quite as amazing as the real thing.
Viewing homes in real life will give you a better understanding of their potential, the real space, and you can even start to imagine how your life would be there.
If you find somewhere you like, it is worth going back to view it multiple times at different times of day, as you will get a better idea of any potential problems that may be present within the home.
Make Offers on Houses or Flats
Found your dream home? Awesome! Now it’s time to make an offer. It is common to offer less than the asking price, however, if there are others who are also interested in the property, it is worth offering the asking price, and sometimes more, especially if it is very popular.
Look at many other similar properties in the same area and find out how much they have recently sold for. This will give you an idea of how much the property is worth. Once you have decided how much you will offer for this property, you can inform the estate agent over the phone, or in person, however, it is worth putting it in writing to, for your own safety and benefit.
Mention any points that may stand in your favor as well, if you are a chain free first time buyer then you can say that your offer is subject to a survey and the property being taken off the market.
Apply for the Mortgage
Now it is time to apply for the mortgage. You will need to consider what type of mortgage you wish to apply for. A fixed-rate mortgage, or a tracker mortgage, are both options. Also think about how long you want to spend paying off your mortgage as well. 25 years is typically the normal mortgage term, however, this can change to suit you and the lender.
Remember to ensure you have enough saved for the mortgage deposit at this point, and make sure you are comfortable with the lender you have chosen as well.
Find a Conveyancer or Property Solicitor
Conveyancing is the legal process that is carried out once your offer has been accepted. This can include things such as carrying out searches, drawing up, and checking contracts, as well as dealing with the Land Registry and so on.
This may work differently in different locations, but the premise is always the same. You can use a conveyancer, although they may not be a qualified solicitor, but they will definitely specialize in properties, or you can get a solicitor, who you should always double-check has recent experience in property law.
It is up to you how you go about this, and it is worth checking out the laws around this in your area to make sure that you are adhering to the law, and understand what will need to be checked in reference to your property purchase.
Acquire a Property Survey
This is something you absolutely do not want to forget. Property surveys help to assess the condition of the property and detect any potential structural issues. Although this step is actually optional, it is better that you are aware of any issues that the property may have so that you can make an informed decision on how much you will offer, and so that you can budget for any repair work that needs to be done.
Surveys can also help you to negotiate the purchase price down, or even ask the seller to fix any issues before they buy.
A majority of surveyors provide three levels of surveying, a condition report, a homebuyers report and a building survey. Be aware that the cost of this will vary depending on the location, as well as the size and type of property that you are going to purchase.
Research Removal and Moving Companies
If you do not have much furniture that you will need to move into your new home, then you could hire a moving van yourself. However, if you do have a fairly significant amount that you will need to move, then using a removal company can make the whole process a lot easier. Finding a good firm near you is not too hard, but always remember to look into customer reviews and take referrals as well.
The costs for this service will depend on the amount and size of items that you need to move to your new home, as well as the distance to your new property as well, among other things.
Once you’ve found a few firms you like, check availability and compare prices, before you agree on a completion date with the seller you can select a date you agree on.
Acquire Home Insurance
No matter what, it is imperative that you have insurance in place for your new home from the day that you exchange contracts, in fact, a majority of mortgage providers will make this a condition of lending money.
This is done because then you are legally bound to buy the property from the moment that contracts are exchanged, so if the building were to be flooded or burn down before the day of completion, and you were not insured, then you would not be covered for this.
If the property is new, then this is not vital until the day of completion.
Exchange and Sign Contracts
Next up, you need to do all the paperwork. The exchange of contracts happens when the buyer and seller’s legal representatives swap over the signed contracts and the buyer pays the deposit.
Before this happens, you need to have several things prepped in advance, such as a written mortgage offer, an agreed completion date, insurance in place from the day of exchange, and so on.
Once the exchange of contracts has happened, you can now breathe. This agreement for your purchase of the property is now legally binding, and the chances of anything falling through at this moment are now so incredibly low.
Your conveyancer will now lodge an interest in the property, which allows you to pay the seller, and apply to the land registry to transfer the deeds into your name!
After the exchange, completion will happen around two weeks prior. This is flexible, and you can arrange a more convenient date with the seller.
On the day of completion, the money will be transferred to the seller, and you can collect the keys and move in.
Now take a deep breath, and start moving in! This is the exciting part, you can now finish the whole process, and you can decorate the property to your taste to make this house your home.
It’s also worth taking some time to sit down with a drink and relax, it has been a stressful process, and it’s worth taking a moment to gather yourself before you move in and start the moving process. Well done, you are now a homeowner! Congratulations!
Other Costs Involved When Buying A House
So, we have spoken about the process, and we hope that this has been really helpful and that you are now well on your way to becoming a new homeowner.
You are probably thinking a lot about the mortgage right now, however, do not forget there are many other costs involved in buying a house, so make sure to budget for everything from the mortgage, to survey costs, valuation fees, and the conveyancer fees and more.
It is so easy to make the mistake of focusing so hard on the mortgage you totally forget about these other expenses and end up putting yourself out of pocket.
So, let’s go over these additional costs before we wrap up for you.
On average, new homeowners can expect to pay around $400 to $700 for a professional property survey. However, this really depends on many factors, including but not limited to property size, terrain, and location.
Professional surveyors will also charge for the time it costs for them to do research on your property. A well-documented plot of land will take less time for them to research than something with less documentation, and thus, it will cost less money to have surveyed. It also pays to go local, as travel time is also going to be included in the final rice.
The point we are making here is that the easier the land is for them to survey, the lower the costs will be to have it surveyed.
Solicitor or Conveyancer Fees
Do not forget the costs for solicitors. You may already have some knowledge about solicitors. However, conveyancers are another thing. You will need conveyancers and solicitors to advise you about the legal process around buying a property, as well as giving you a hand in the handling the transfer of the property.
Costs for solicitors or conveyancers can range anywhere from $500 to $1,400. It really depends on the particular factors around the sale and purchase of the property.
A conveyancer is a qualified professional that specializes in all the aspects of property dealings. As well as ownership transfers, they help to prepare and lodge all the documents that are required to complete the transaction, as well as the contract of sale and transfer of land documents.
Mortgage Arrangement and Valuation Fees
The repayment of a mortgage is not the only cost associated with a mortgage. You may also have to pay arrangement fees, valuation fees, booking charges, and legal expenses as well. It is more than just a loan in some ways.
Arrangement fees are what you pay for the lender to set up your mortgage, the fees can vary depending on the situation, but can go up into the thousands. You can often choose between paying for this upfront or just adding it to the mortgage, just remember that it will cost more to do the latter as it will then have interest added on top of it.
Valuation fees are the fees that pays for the lender’s survey of the property that you are looking to purchase. This is a basic surgery that just checks that the property is adequate security for their loan. The cost of this can vary, and some mortgages may even have free valuations. Keep an eye out for this!
Moving in Costs
The cost of moving in depends on many factors from how far you are moving, to if you hire your own van, or if you hire a company. To hire a professional mover it can cost around $562 to $1554, averaging at around $25 to $50 per hour. This really does depend on the situation, so it is worth setting aside a few thousand dollars to make sure you are secure for this part of the process.
Insurance on Buildings
The cost of property insurance can vary, it depends on you and the property entirely. It can be anything from less than $100 a month to a couple of hundred dollars per month. It really depends on the situation. It is worth shopping around to find an ideal insurance provider that gives you a great deal.
Furnishing and Decorating Costs
Furnishing and decorating costs will vary depending on your situation. You may already have some of the items to furnish your home, and so your costs may be less than for someone who has nothing to furnish their home. If you are short on cash, it can be worth looking at homeware charity shops. Before you make your purchase, it is worth looking into how much you will need financially to fully furnish your home.
It can be worth adding this to your budget as you save up money to purchase your first home.
Buying your first home can be really intimidating, but it does not need to be. The process is scary and stressful, but it can be one of the most rewarding things you can do. While you need to be aware of the inner workings of getting a mortgage and everyone and everything involved in the home purchasing process, it’s worthwhile putting together a plan. Putting together a plan will help you to ensure you cover all the potential costs involved in the process, all the way from mortgage payments, to hiring a conveyancer, to decorating your new home post-purchase. Preparedness will help you throughout the process.