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What a First Time Buyer Needs to Know
What Is A First Time Buyer (FTB)?
If you’ve never owned residential property and are looking to buy a property to use as your home, you are a First Time Buyer (FTB).
The mortgage application process is the same for First Time Buyer as it is for other mortgage applicants. The challenge lies in finding a mortgage lender who will accept your application, which has become increasingly difficult in recent years.
What Is An Agreement in Principle?
An Agreement in Principle (AIP) is a conditional mortgage offer that can be obtained from your chosen lender, prior to choosing a property. This is based on your affordability and credit score and relies upon the provision of proof of income before the mortgage is officially agreed.
Obtaining a mortgage decision in principle prior to approaching the vendor, can improve the chances of them accepting your offer on their property.
How Much Can A FTB Borrow?
With any mortgage, the loan amount is based on your household income and other financial responsibilities. The fact that you’re a first time buyer should not affect the loan amount.
There are other factors which can affect how much you are able to borrow, such as whether it is a single or joint application. A free online mortgage calculator can help provide an idea of how much you may be able to borrow. The amount will vary from lender to lender, however.
How Much Deposit Do I Need?
First Time Buyers will usually require a deposit of at least 10% of the total property value.
In order to help those struggling to get onto the property ladder, there are some government-backed schemes aimed specifically at first time buyers. These allow you to secure a mortgage with a deposit as low as 5%.
What Help Is Available For FTB’s?
The Help to Buy Scheme allows you to borrow an interest free five year equity loan for 20% outside London and 40% within Greater London of the price of your desired property, so long as you can provide a 5% deposit. This means that the mortgage will only need to be for the remaining 75% or 60% respectively, making the loan amount more achievable and the interest payments lower.
Another option is the Shared Ownership Scheme, which allows you to buy a share of the property. This makes the deposit and mortgage payments more affordable. Keep in mind, however, that you’ll also have to pay rent on the remaining share that you do not own. This is usually payable to the Housing Association.
How To Improve Your Credit Score
A strong credit rating will greatly improve your chance of acceptance for a mortgage. It’s fairly easy to check your credit score through a credit reference agency online.
When you make plans to apply for a mortgage, it’s best to prepare your credit score in advance. Here are a few ways to increase your score:
- Make sure you’re on the electoral register
- Check that your address is correct on all accounts
- For as long as possible in advance of the application stay within 50% of your available credit
- Ensure all payments are prompt and clear balances where possible
- Ironically, never having had credit can result in a low score. There are special credit builder credit cards available to help with this
What Fees Are Involved When Buying A Home?
There are a number of other costs involved with a mortgage application other than the deposit. Your lender will charge arrangement fees and valuation fees. You will also need to pay legal fees, such as land searches and conveyancing, to a solicitor.
Another charge to be aware of is stamp duty, which is ordinarily charged on the sale of all homes. There is currently an extended stamp duty holiday that means If you purchase a property under £500k prior to 31 March 2021 you will not have to pay this at all.
How can a Mortgage Broker Help if you are a First Time Buyer?
Taking out your first mortgage is a huge decision and a lot of responsibility. A Mortgage Broker can advise you on what type of mortgage is best for your individual circumstances, and find you the best mortgage deals available.
They also know which lenders are most likely to accept your mortgage application. This allows them to steer you away from rejected applications and help you fulfill the eligibility criteria. Overall this saves you time; money and disappointment, as well as helping maintain your credit score, which is impacted by failed mortgage applications.