The Ultimate Guide to Buying Your First Home: Everything You Need to Know About Upfront Costs, Mortgages and Eligibility

Taking the leap and buying your first home is one of the biggest choices you’ll ever make. There’s the fun stuff, like deciding where you want to settle down and raise your family. Then there are the more complicated matters, like understanding credit scores and navigating the different mortgage products available to you.

If you feel like your head is in a spin, and you’re not sure where to start on the journey of being a first-time buyer, then look no further. We have equipped this blog with all the essential information you need to buy your dream home.

After reading this guide, you’ll be a home-buying guru, armed with all the knowledge you need to build a healthy credit score, become mortgage-eligible and find a finance option that suits your long-term goals. So strap in and get ready to put the excitement back into home buying.

Can you buy a house? – The upfront costs you need to know about

The first hurdle for aspiring homeowners is saving enough money for a deposit. Most banks and lenders expect you to have 10% of the house’s value, and they’ll then lend you the remaining 90%. For example, if you want to buy a £100,000 home, then most banks will expect you to have a £10,000 deposit, and they’ll lend you the additional £90,000. The amount of money a bank is willing to lend against an asset’s value is referred to as ‘loan-to-value’ (LTV).

Some banks offer different schemes, like 5% deposits. There are even finance products available that don’t require any deposit, so doing your shopping or working with a broker is crucial to securing a mortgage offer that works for you.

If you have the funds available, then it is worth considering putting down a larger deposit than you need to, as this can reduce your interest rate.

Another thing to consider if you’re a first-time home buyer is that you are exempt from stamp duty, which normally costs between 5 and 12% of the property’s purchase price. However, you do need to pay this tax if the house you want costs more than £425,000.

How to improve your chances of getting a mortgage

Many first-time buyers fear the dreaded ‘mortgage’ word. What if you can’t get one? What happens if you don’t have a healthy credit score?

Our first piece of advice is not to worry. There are lots of mortgage products out there, and different banks have different criteria, so there’s a high chance that at least one of them will be right for you. Plus, a mortgage is just like a marathon. It can seem daunting at first, but with enough preparation, you’ll overcome any obstacle with ease. Here’s what we recommend you do to train and get mortgage-ready.

First and foremost, it’s crucial to check your credit score. While there isn’t a specific minimum score required for buying a house, a higher credit score significantly improves your chances of snagging a favorable mortgage deal. To stay in the know, take advantage of the opportunity to review your credit score, a free service offered by the three major credit agencies: Experian, Equifax, and TransUnion. It’s advisable to take this assessment roughly one year before purchasing your first home.

Understanding your credit rating provides valuable insights into your financial standing and whether there’s room for improvement before beginning the mortgage application process. By managing and enhancing your creditworthiness, you can increase your odds of securing a mortgage as a first-time home buyer. But it’s not just about getting a mortgage; a good credit score opens the doors to mortgages with better payment terms, which can make your journey to homeownership smoother and more affordable.

First-time buyer schemes and other mortgage options

As a first-time buyer, you have access to schemes that are designed to make the home-buying process easier and more affordable. Among these options, the government’s First Homes scheme is one of the most promising, which grants first-time home buyers a substantial 30% discount when purchasing a new-build home.

However, the First Homes scheme has a price cap. Eligible properties cannot be sold for more than £250,000, except in Greater London, where the cap extends to £420,000. To qualify for this discount, first-time home buyers must secure a mortgage for at least 50% of the property’s purchase price.

The purpose of this scheme is to provide a helping hand to first-time buyers in England aged 18 or older. To be eligible for this scheme, you must have had a household income of £80,000 or less (or £90,000 or less if you’re in Greater London) in the tax year preceding your property purchase.

First-time home buyers’ benefits

To kickstart your journey to homeownership, it’s crucial to determine whether you officially fall under the category of a “First Time Buyer.” You may wonder why this is so important. This classification holds weight as it opens doors to certain benefits, including Stamp Duty relief.

Generally speaking, you can consider yourself a first-time home buyer if you’ve never owned a residential home anywhere in the world (commercial property doesn’t disqualify you from this). So, if you’ve dabbled in the commercial real estate realm but have yet to make your mark on the residential landscape, you likely still hold the title of “first-time home buyer”.

However, some exceptions may strip you of this status. Suppose you’ve previously owned a residential property, including a buy-to-let property, regardless of whether you still own it or only owned a portion of it. In that case, you won’t be considered a first-time home buyer. Similarly, if someone else purchased the property on your behalf and registered it in their name, or if you’ve inherited a property and subsequently sold it without ever occupying it, you won’t be considered a first-time home buyer.

Also, it is important to note that if you are planning to buy your first property with a partner or a second person, you both have to meet all the requirements listed above to be entitled to any benefits.

How do I find my dream home?

While scrolling Rightmove is a great way to kill time on your lunch break, it’s not the only way to hunt for houses. Instead, register with all local estate agencies and give them a description of the type of home you want. Be as specific as possible, and they’ll email and call you with any new opportunities that come on the market.

In-person viewings are essential. Pictures can be deceiving, and how the property feels to you is just as important as how it looks, so don’t rely on virtual listings alone. When on a viewing, keep your eyes open for little things that could make a big difference in how happy you would be living there. For example, how easy is it to park? Do you have privacy, or are adjacent properties looking directly into yours? What is the area like, and do you feel safe there?

What to look for when buying a property?

There’s a difference between buying a house and buying a home. You’ll have things that are important to you and are non-negotiable if you’re planning on living somewhere for a long time. For some people, this non-negotiable is a large garden, for others, it’s easy access to local schools with a positive Ofsted rating.

So, to put you on the right path and help you make a well-informed buying decision, we have provided some guidance below.

Choose what you need

Decide what type of property you are most interested in, like single-family houses, flats, detached homes, bungalows, or any other type of property. Each has its advantages and trade-offs, so choose the one that suits your needs and preferences.

Manage Expectations and Compromise

Understand that your dream home might not check every box on your wishlist. Be prepared to compromise on certain aspects, such as location or the property’s condition. Flexibility can open up more options within your budget.

Consider Fixer-Uppers in Expensive Areas

If you’re eyeing an expensive area, don’t dismiss fixer-upper properties. These houses often come at a lower initial price but require renovation. Be sure to factor in the additional costs associated with fixing up the home when making your decision. Another benefit of renovating your own home is that you can add substantial value to it, a bonus that you’ll feel should you ever decide to sell or remortgage the property.

Helpful questions to ask when evaluating potential homes:

• Ask about how long the property has been listed. A house that has lingered for an extended period may have underlying issues or might be overpriced.
• Ask about any renovations or improvements made to the house. Understanding the history of upgrades can give you insights into the property’s condition and maintenance.
• Inquire about the number of offers the property has received. This information can give you an idea of how much competition you have, and if a ‘bidding war’ is likely.

Think about your future

Even if it’s your first home, think about its resale value. Life circumstances change, and you may eventually decide to sell. The property market can fluctuate over the years. While you can’t predict with certainty how the market will perform, choosing a property in a desirable location with a history of stable or appreciating values can increase the likelihood of a profitable sale when the time comes to move.

A home’s resale value is also influenced by its surroundings. Consider the quality of the local area, access to schools, parks, shopping centers and public transportation.
A well-connected and amenity-rich area tends to hold its value better.

Once you decide to make an offer

Once you’ve identified the property that aligns with your expectations, it’s time to take a significant step – making an offer.

The housing market is changing, and it’s good news for people looking to buy their first home. Experts predict that house prices will go down somewhere between 2% and 15%. This is a positive change, especially for first-time buyers who have been struggling with high prices for a long time. So, if you’ve found a property you like, don’t be afraid to make an offer, even if it’s less than the asking price.

What are other costs you need to consider before buying your first home?

Conveyancing fees

First on the checklist are the conveyancing fees, ranging from £500 to £1,500. These fees cover the indispensable services of a solicitor or conveyancer who will guide you through the labyrinth of property transactions.

Land Registry fees

Averaging between £90 and £140. It’s worth noting that your solicitor might bundle this into your conveyancing expenses, but it’s advisable to check.

Homebuyer survey

It is an important step in revealing the property’s condition and potential issues. Costs can range between £400 and £1,500, but peace of mind is priceless.

Mortgage fee

Sometimes known as an arrangement fee, it’s basically the fee you are required to pay to set up the loan, which can set you back £1,000 to £2,000. Fortunately, some lenders allow you to roll this fee into your mortgage.

Indemnity insurance

This is a one-off payment that safeguards against potential property-related headaches, often costing just a few hundred pounds.

Building insurance

On average, it costs about £110 annually and is typically stipulated by mortgage lenders.

Preparation is key

There’s a famous quote by Abraham Lincoln that says “Give me six hours to chop down a tree, and I will spend the first four sharpening the axe”.

This quote perfectly sums up the process of buying your first home. It all comes down to the work you put in upfront, ensuring that you have all the knowledge you need before taking out a mortgage. If you know your stuff, then you can stop yourself from paying high interest rates and being locked into a mortgage offer that does not financially work for you.

However, the property market is ever-changing, with new finance options regularly becoming available. It can feel impossible to keep on top of everything, which is why Intanest is such a powerful tool.

By joining our platform, you get access to the latest property insights and market changes directly from industry experts. You can become a property guru from the comfort of your own home, and all for zero cost.

Stay in the know and make informed decisions that will save you thousands of pounds by clicking here to create your free account.