Making sense of your mortgage
Getting your first foot on the property ladder is exciting, but it can also seem a daunting prospect, with so many things to consider. This guide will help you make informed choices about the finance involved.
Your Budget
The first thing you will need to do is find out how much you can borrow. Your lender will lend to you based on your individual circumstances. They will look at your household income and then take into account any monthly credit commitments such as loans and credit cards.
You should also find out how much your monthly repayments and other outgoings are likely to be and check that you will be able to afford them. Stretching your finances to the limit could prove very costly in the future.
The Right Mortgage for You
Your mortgage is likely to be the biggest expense of your life. When you take out a mortgage, remember that not only do you have to pay back the initial loan, you’ll also need to pay interest, usually equating to the same amount again.
The home loan amount you are offered will depend on your income, employment status, other financial commitments and the size of the deposit you can provide. There are many mortgages available but they are all either:
• repayment, where your monthly repayments cover both the capital and interest on the loan, or
• interest only, where your monthly repayments cover only the interest and the full amount of the loan is repaid by putting additional funds in long-term investments.
Other factors to consider are Early Repayment charges (charges for moving lender or changing product), whether the loan comes with repayment holidays, if you can make over or underpayments, any “cash back” sums offered at the outset and whether you can still afford the repayments once a special or discounted rate is over.
Remember the Hidden Costs
In addition to your mortgage and your deposit, there are other costs involved in the process of buying a house. When planning your budget, it’s important to be aware of the ‘hidden costs’ along the way.
Heating and Tax
As well as the value of the house itself, you should also think about other factors, such as the overall size and age of the house. Bigger houses cost more to heat and usually demand higher Council Tax, and newer houses generally are cheaper to maintain for the first couple of years.
Property Surveyor’s Fees
Once your offer has been accepted you will need a property survey to assess its condition and value. A detailed report on the condition of the property is highly recommended, as it will not only satisfy your mortgage lender but also give you peace of mind. Be prepared to budget for more than one survey during your home-buying process, in case the first sale falls through.
Solicitor’s Fees
Because you are a first time buyer, you don’t have to sell your present home before you can move. This puts you in a stronger buying position and could help speed up the buying process. But you will still need a good Solicitor or Conveyancer to make sure the property is legally yours. Your Solicitor or Conveyancer will obtain all the legal documentation, including a contract for sale and an inventory list from the seller, so that you know exactly what is included in the purchase price – such as carpets, curtains or kitchen appliances. They will also confirm the property’s legal boundaries.
Stamp Duty
Stamp Duty Land Tax (SDLT) is charged on any property purchase over £125,000. The tax is charged at different rates and has different thresholds for different types of property and different values of transaction, so it’s worth checking what threshold your property comes under. But as an overview; residential properties between £125,000 - £250,000 are charged at 1%. Properties between £250,000 - £500,000 are charged at 3%, and anything over £500,000 is 4%.
Once you have moved into your new home, there are a couple of things you need to do to. First, after the first month, check that you are paying the right mortgage repayment amounts at the right time. Second, make sure that you carefully file away all the important documentation you have gathered. They are your primary record of your purchase and your mortgage, and you may need them in future.
Good luck!
Digg it
Reddit
Delicious
Stumble It!
Furl it