A first-time buyer's guide to mortgages
Buying your first home is an exciting milestone, but navigating the world of mortgages can feel overwhelming. Don't worry, you're not alone!
This guide is here to help you understand the key steps and terminology so you can approach the process with confidence.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Step 1: get your finances in order
Before you even start looking at properties, you need to understand your own financial health. Lenders will assess your income, outgoings, and credit history to determine how much they're willing to lend you.
Check your credit score:
Your credit score is a major factor in a lender's decision. A good score shows you are a reliable borrower. You can get a free copy of your credit report from services like Experian or Credit Karma to see where you stand.
Save for a deposit:
The more you can save for a deposit, the better. A larger deposit means you'll need to borrow less and you may also be offered a better interest rate.
Generally, a deposit of at least 5-10% is required, but saving 15-20% can make a significant difference.
Calculate your budget:
Be realistic about what you can afford.
You can use online mortgage calculators to get an idea of potential monthly payments, and be sure to factor in other costs like Stamp Duty, legal fees, and moving expenses. Or speak to one of our helpful advisors who’ll be able to speak to you about the full picture and help you accurately set your expectations.
Step 2: Understand the types of mortgages
Not all mortgages are created equal. It's important to know the difference between the most common types so you can find the right one for you.
Fixed-rate mortgage:
Your interest rate is "fixed" for a set period, usually 2, 3, or 5 years. This provides stability, as your monthly payments will not change during this time, even if interest rates rise.
Variable-rate mortgage:
The interest rate can change at any time. This may be a good option if you believe interest rates will fall, but it comes with the risk that your payments could increase.
Tracker mortgage:
A type of variable-rate mortgage where the interest rate "tracks" a specific external rate, such as the Bank of England's base rate, plus a set percentage.
Step 3: Get a Mortgage in Principle (MIP)
A Mortgage in Principle (also known as an Agreement in Principle or a Decision in Principle) is a conditional offer from a lender stating how much they would be willing to lend you. While it's not a formal offer, getting an MIP is a crucial step.
Why is getting one important?
It shows estate agents and sellers that you are a serious and viable buyer, giving you a competitive edge. It also helps you set a clear budget for your property search.
How to get one:
Simply get in touch with our team and arrange an appointment. We’ll do all of the leg work!
Step 4: Find the right mortgage product
Your Mortgage Advisor will have access to the tools to search the market for the best deals for you.They have access to a wide range of lenders and products, including some that aren't available to the general public. They can save you time and help you find the most competitive rate.
You can of course go directly to a bank or building society. This is a good option if you are confident about what you need and have a clear idea of the rates you can get and the time to throughly research the market. However, you will only be able to see the deals offered by that specific lender.
Step 5: Make a formal mortgage application
Once your offer on a property has been accepted, it’s time to celebrate…. and make your full mortgage application.
There will be some information you’ll need to provide and documents like payslips, bank statements and proof of your deposit. But we’ll guide you every step of the way and fill out the majority of the paperwork on your behalf to keep things super straightforward.
The lender will arrange for a valuation of the property to ensure it's worth the price you've offered. This is for their own security.
Step 6: Approval from the lender
All being well, the lender's underwriters will review your entire application to make a final decision. This is a critical stage, so be patient and responsive to any requests for additional information.
Once your mortgage application is formally approved, you'll receive a mortgage offer. You can now move on to the final steps of your home buying journey, including conveyancing and finally, getting the keys to your new home.
Remember, every situation is unique. Take your time, do your research, and don't hesitate to seek advice from a qualified professional. We’d love to guide you through this exciting stage - speak to us about a mortgage appointment.
