If you’re a young adult whose studies have been financed by your parents, it’s fair to say that you’ve probably never taken a loan before. Student loans might be stressful, but at least, they’ve encouraged a part of the active population to embrace their financial situation. When you learn to control your budget as a student, you have no difficulties understand what it means to take a mortgage to buy your first home. You have previous experience in loan applications, credit score, and expense management. While it doesn’t mean you’ll find it easier to obtain a loan for the house of your dreams, you’re at least approaching this financial obstacle equipped with knowledge and budgeting skills.
But for many students who didn’t need to look after their savings because they were supported by their parents, the reality shock of the mortgage world might be troubling. Where do you start when you want to buy a home?
Understand how much you can truly afford to pay
Buying your first house is exciting, but the process is very different from what you need to do when you’re looking for a home as a tenant. Indeed, as a future homeowner, you need to factor in the real cost of the buying process – which has nothing in common with the kind of deposit and monthly rental fees you’ve experienced as a tenant. Indeed, while nobody expects you to be able to pay for your house cash – that’s what mortgages are for – you still need to make a deposit of at least 10% of the property value. For future homeowners, raising the deposit is by far the main obstacle to their quest. If you consider an average cost of £170,000, you need to save a minimum of £17,000. Additionally, you’ll have to a property valuation for your lender, as well as your own survey if you want to a breakdown of the house condition. Finally, you’ll encounter solicitor’s fees to handle the legal aspects of the purchase and a stamp duty tax for everything above £300,000.
So, what’s your loan application processes?
A mortgage is nothing else than a loan used to purchase a real estate property. Consequently, you’ll need to prepare your loan application. You can’t afford to wait too long for this, as the application process can take time. You want to be in a situation where you can pay for the house you want as soon as the deal is agreed on. If you’re not able to obtain a loan on time, the seller can cancel the agreement. Homeowners who are in the process of selling their home to purchase a new one need to apply for bridging loans instead of a traditional mortgage. To speed up the application process, you need to ensure that you’ve put all the chances on your side. Incorrect data, unstable employment history or even too many loans under your name can encourage a lender to reject your application. But the Number One reason for rejection is a bad credit history.
How do you improve your credit score
Your credit score is not static. It is affected by your financial health, your payment behaviour and your choices. Admittedly, while no change happens overnight, it’s fair to say that you can boost your credit score ahead of an application with the right practices. How much revolving credit you have vs. how much you’re using is one of the decisive factors. Aim for 30% or lower, meaning that paying down your balances and keeping them low can work wonders!
How can you manage your finances?
If you’ve never taken a loan before, you need to get into the habit of managing your finances before you apply. While this won’t influence your application – unless you’re struggling with debts – it will make a great deal of difference when it comes to managing your mortgage payments. Make a habit of saving money on your essential items. For instance, while you can’t do without car insurance, could you be looking for a cheap and still effective alternative? Is your energy supplier the best option at the moment? You get the picture. Maximise your savings without depriving yourself of your comfort.
Last and not least: Is it the right time to buy?
Finally, if you’ve never taken a loan, you need to know that buying a house is a long-term investment. So, ultimately, you need to ask yourself is whether now is the right time for you to buy a house. Indeed, as the Brexit date is looming closer, some home-searchers are considering postponing their purchase. It’s impossible to tell how the market will evolve.
Hopefully, this little guide will help you to avoid rookie’s mistakes and to navigate the troubled waters of property investment safely. Becoming a homeowner doesn’t happen easily!