First Time Buyer

First Time Buyer Mortgages – What you need to know

Buying a house is an exciting time. The new possibilities and dreams you have for your future can easily get tied up in buying a new home. The process can also be overwhelming, especially if you are a first-time buyer looking for a mortgage. Doing your research beforehand can help you navigate through this process with greater ease.

What is a first-time buyer?

It is important to note that you can be a “first-time buyer” more than one time in your life. There are several different qualifications that may apply to you, even if you have previously had a mortgage before. An individual who has not owned a home for three years can qualify as a first-time buyer. This also applies to married couples. So if one person in a couple qualifies, the couple qualifies together as a first-time buyer. A single parent who previously owned a home with a spouse also qualifies as a first-time buyer. You may also qualify as a first-time buyer if you owned a residence that was not attached to a foundation like a mobile home.

How is the process different for first-time buyers?

The process is generally the same for first-time buyers as it is with any other buyer except for a few differences. One major difference is that you will have to save for a deposit instead of using the sale of an existing home as part payment. Another difference is that there may be an exclusive first-time buyer mortgage deals to encourage people to become homeowners. Taking advantage of these deals can help you cut down on costs.

How much can a first time buyer borrow?

How much you can borrow will depend on your salary and your credit score. The general rule of thumb is about four times your salary, but that can change depending on your credit history and savings. Each lender is different, so some may also take into consideration bonuses and holiday pay, along with other financial aspects of your job.

What is an Agreement in Principle?

An agreement, in principle, is the amount a lender will give depending on the information you provide about your income, spending, and current debts. It is not the same as being pre-approved, and the number can change, but it will give you a starting point if you are thinking about buying a home.

Checking your credit score and improving it.

You can check your credit score through a credit reference agency e.g. Equifax,Experian, Transunion and Crediva, or Check My File, who cross references all four. Most checks will come with an outline of things you are doing well and things you can improve. A good rule of thumb is to pay all your bills on time, pay off debts, keep credit card balances low, and only open new credit accounts as you need them.

Help available for first-time buyers.

Those with a small deposit, could be eligible to use the Help to buy scheme:

Equity Loan scheme: 

Available to first-time buyers and existing homeowners who want to buy a ‘new build’ house. The purchase price must be no more than £600,000. Under this scheme, you can borrow 20% of the purchase price interest-free for the first five years as long as you have at least a 5% deposit. If you live in London, you can borrow up to 40% of the purchase price.

The Help to Buy equity loan scheme: 

This will be extended until 2023. However, this extension will be restricted to first-time buyers purchasing newly built homes. From 2021, there will also be new regional price caps which could reduce the maximum value of home that can be bought through the Equity Loan Scheme.

Fees involved with buying a house.

You should also be aware that there will be other fees involved with buying a house. Mortgage fees, searches, surveys, and protection fees will all be on you to provide at the time of purchase. Stamp duty is also a tax that you may have to pay if you buy a home, but this only applies on purchases after 31 March 2021.  Your home may be repossessed if you do not keep up repayments on your mortgage.