Dwell Well > Moving > First time mortgage: what do I need to know?

First time mortgage: what do I need to know?

There’s no denying that buying a house is huge. 

In fact, it’s, likely, to be your biggest ever purchase. Before you do go for your first-time mortgage, there are a few steps to be aware of to ensure you get the best possible deal, set over a realistic time period. 

With that in mind, we are sharing everything you need to know before your first mortgage. 

What can you afford? 

The initial step for your first-time mortgage should be figuring out what you can afford. Don’t stretch yourself too thin and offer larger repayments if it is an amount you will struggle with later down the line. When discussing your mortgage repayments, you must also consider other bills - such as household costs, council tax, insurance and general maintenance. 

When you do opt for one of the many mortgage types, the lenders will look to your income, along with expenditure and any other debts, to make sure you can manage the repayments. Therefore, it pays (literally) to be utterly transparent. 

Bad credit 

Following on from the above point, any debts you may have had and not repaid in full - or even missed any repayments - can impact your credit report. Lenders will take into account your credit report, and a bad score will mean you will not get access to the best deals. 

While it is certainly not impossible to obtain a mortgage with bad credit, a poor score will limit the number of lenders willing to provide you with the essential funds. If you do have bad credit, you can start with building your report and seeking mortgage broker advice as to your next step. More often than not, mortgage brokers will be able to point you in the right direction to lenders that do support those with bad credit. 

Where to look for a mortgage?

There are several options for looking for a mortgage. You can choose to apply for a mortgage directly online - from a bank etc. - and choose from their range of offers. If you do choose to go direct, it might be faster, but there is also a chance you will miss out on offers that only mortgage brokers and advisors can provide. 

Alternatively, you can seek mortgage help from a broker or independent advisor. Mortgage brokers will analyse the whole market for the best offers and work to provide the best solution for you. If you do have bad credit, they will also have an idea of the products you will be accepted for, without having to risk further damaging your credit score with rejections from lenders. 

Similarly, good mortgage brokers will also offer advice on other financial purchases, such as life insurance. You can read more on the role of a mortgage broker here. It’s important to note, however, that taking mortgage advice will certainly be best unless you are experienced in the industry and financial matters. There is a lot to consider when buying your first home, and mortgage broker advice could prove invaluable during the process. 

If you choose to not take advice, you will be expected to know: 

  • What mortgage type you are applying for;

  • What property you are buying;

  • How much you need to borrow and the time period;

  • The interest and rate you are borrowing at. 

Different types of mortgages

Before opting for your mortgage, you need to consider whether you are paying interest only or combined interest and capital in your repayments. Similarly, you must also think about the various types of mortgages. Mortgages come with fixed or variable interest rates. 

Fixed-rate mortgages, essentially, mean your repayments stay the same for a certain amount of time. Generally, fixed-rate mortgages last between two to five years. On the other hand, variable interest rate mortgages mean the repayments can increase or decrease in line with the Bank of England base rate.  

Help to buy 

The help to buy scheme is available for those who have successfully saved a deposit of 5% or more of your future home’s value. With this scheme, the government will then step in to boost this amount with an equity loan. The government will lend a further 20% to your 5% - or 40% if you’re in London - creating a total deposit of 35%,, available for new-build properties. The government’s part of the loan is interest-free for five years. When you reach year six, you will be charged 1.75% interest, increasing every year in line with the Retail Prices Index. You can read more on the help to buy mortgage scheme here

Joint mortgage 

A joint mortgage is also an option if you require a little more help to get on the property ladder. For instance, you can buy a home with your friends or family members who can add to your deposit and, therefore, take out a larger mortgage loan. A joint mortgage will mean that those who help to buy will own equal parts of the property, so it’s a good idea to seek expert advice before going down this route - particularly if one of you would like to sell before the other. 

Guarantor mortgage 

A guarantor mortgage also involves help from others to take out a larger mortgage. However, the guarantor will cover any missed mortgage repayments if you cannot afford them. Again, seek advice beforehand so everyone knows what is expected and the consequences should you not be able to afford your mortgage. 

Shared ownership mortgage 

Shared ownership mortgages are another government scheme, designed to help first-time buyers and those with low incomes buy a house. You can take out a mortgage for the share of the home you own - typically, between 25% and 75% - and pay rent towards the other proportion. You will qualify for this mortgage scheme if you earn less than £60,000 per year, and you can read more here

The application 

When you do apply for a mortgage, the process is, generally, split into two stages. The first stage will see the lender or mortgage broker ask you a series of questions on the mortgage you are looking for, the repayments and the amount of time you are looking to repay the mortgage. The lender and mortgage broker will also attempt to gage your financial situation to assess what products will be available to you, and if the offer is the best fit for your finances. 

The second stage is where the application begins, with the mortgage broker/lender conducting a ‘full fact find’. Essentially, this will be a detailed assessment on your finances to ensure you can afford the mortgage. Evidence of your income and expenditure will be required, with the lender also assessing the impact on your repayments if the interest rate was to rise. 

If you do choose to accept the mortgage, your application will be placed under a ‘binding offer’. In simple terms, you will have seven days to look through the mortgage, compare with other offers on the market and assess if the repayments are manageable. 

What about my deposit? 

When you do buy a home, you will have to put down a deposit towards the cost of the property. However, as a general rule of thumb, the larger the deposit, the lower your interest rate. This is simply as the lender takes less of a risk the smaller the load. The cheapest interest rates are available to those with a 40% or higher deposit. 

It’s also worth noting that the average deposit for a first-time buyer is £43,433, according to MoneySuperMarket data from January 2016 - July 2018. 

If you are unsure of where to turn and require help for buying your first home, we have a number of mortgage brokers - spread across the country - that can assist and ensure you receive the best possible product. 

"Mortgage help from brokers or advisors should certainly shed more light on the procedure - particularly if this is your first experience with buying a home."

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