Buying your first home is both an exciting and frightening idea. Home ownership gives one a sense of maturity; the knowledge that you have moved to a new, more responsible station in life. At the same time, owning a home involves new financial obligations; a mortgage and utility bills to be paid. If you think that you are ready to delve into owning a home in 2019, this article can be a guide for your next steps.
Evaluate Your Expectations
With all of the television shows that highlight houses with several bathrooms and wonderful amenities, it is easy to build up expectations of what a normal home should be. As you begin to look at homes, take the time to consider your real needs. What are the things that you must have and what are the things it would be nice to have? It is better to be pleasantly surprised when a house exceeds your realistic expectations than to be consistently disappointed that the houses in your price range always fall short of being your dream home.
Look for an Affordable Location
In general, the more popular an area is, the higher property prices are going to be. There is a cost to having a home that is right in the middle of all the action, convenient to schools, shops, and restaurants. Yet often, if you are willing to walk or drive a little further, you can find a significant reduction in price. In following this strategy, be sure to account for the cost of commuting. It may not be worth it to save a little money on a house if the cost includes parking fees or time lost in a long commute to work.
Prepare for the Initial Deposit
In buying a home, the highest hurdle for many people to get over is the initial deposit. It can be difficult to accumulate enough money to cover that first payment. Keep in mind that the deposit is not the only initial expense. There are other expenses to consider such as solicitor’s fees, survey fees, and moving costs that can add to the initial overhead. Currently, stamp duties are waived for first-time home buyers so long as the property is valued at less than three-hundred thousand pounds. If you are considering a home with a larger value, these government fees will also add to the up-front cost.
The ability to put down a larger initial deposit can give you more options in the home-buying process. A larger deposit can help you purchase a house that is in your preferred neighbourhood, is larger, or has more amenities. It can also make the financing of a more modest home more affordable, reducing the amount you have to obtain through a mortgage.
Some people will turn to family members or friends for a personal loan to help increase the amount of the initial deposit. This can be a helpful solution, but it can also lead to strained relations if obligations and expectations are not clear from the beginning. Every loan, even from a parent or friend, should come with written documentation outlining how and when the loan will be paid back.
Now is the Time to Start Saving
In theory, saving money should not be so difficult. The financial calculation is quite simple. Spend less and make more. The time leading up to your first home purchase may be a time of intentional frugality, living simply as you work toward a financial goal. Get to know your spending. Pay careful attention to the difference between necessary expenses and optional expenses. Even a small change like eating at home rather than a restaurant can make a large difference in savings over time. If circumstances allow, you may also want to examine supplementing your income with extra hours at your current job or getting involved in one of the many short-term options of the gig economy.
Financing Your New Home
Once the initial deposit and costs have been secured, the next step will involve financing the rest of home cost, normally by means of a home mortgage loan. The lender pays the seller the balance of the home cost, and you pay back the lender over time with interest. The most common lenders for this purpose are banks and mortgage companies.
In order to secure a mortgage, the lender will want to know your financial situation, including your credit score. As you prepare to start searching for a loan, make certain that your score is the best that it can be. Try to pay off any outstanding debts that you have, and keep the balances on credit accounts low. If you have regular bills, such as utility bills, be certain to pay them on time. Delinquent payments have a negative effect on your score.
Because there are many lenders available, including government help for first time buyers, it is important for you to do some investigating as to what is the best for your situation. For instance, if you expect that your financial situation will improve in the next few years, you may want to see if there is a penalty for paying off the mortgage early. Lenders also vary in the types of loans they offer. Be certain that the lender’s representative is able to explain clearly the different options available, such as pros and cons of fixed-rate and adjustable rate loans.
Creative Solutions to Home Ownership
In recent years, new options for financing the purchase of a home have become available. These plans help to deal with concerns about the cost of the initial deposit. Two of the most important plans are Shared Ownership and the Help to Buy equity loan.
Shared Ownership arrangements are also known as part buy/part rent schemes. In this arrangement, the homeowner buys a share of the home, rather than the whole property, and then pays a reduced rate rent to a housing association. The up-front deposit and mortgage are smaller because you are only making payments on the owned share. Over time, you might purchase more shares as finances allow until you are the full owner of the property.
Help to Buy equity loans are government-funded loans that help cover the cost of the initial deposit. The government provides a loan of up to 20% of the property value. This loan is interest free for the first five years. The buyer only needs to raise 5% of the initial value for a deposit. The other 75% of the cost for the property is obtained through a traditional mortgage. By lowering the initial cost, these loans make home ownership a possibility for a new generation.
Buying your first house takes effort and planning. It is also critical to do the research to be able to make wise choices along the way. But when all is said and done, there is great satisfaction in getting onto the first rung of the property ladder and having a home to call your own.