First time buyers may find the process of buying their first home daunting. It’s understandable, as you will have to make sure your credit score is good enough, that you have a deposit saved up for a mortgage, amongst other things. The latter of which is what we’re going to talk about in this article.
In order to work out how much you need to save for a mortgage, you to first work out your monthly disposable income. Once you have deducted your expenditures and monthly outgoings from your monthly income, you will be able to calculate and estimate how much you can allocate towards your mortgage savings. This way, you can set clear and realistic goals for how much you will need to be saving each month.
Usually, when taking out a mortgage with a high street lender, you will need to provide least 5% of the cost of the property. Some first time buyers try and aim to save a minimum 20% of the property price, if not even more. The bigger deposit you put down, the slightly lower your monthly payments will be.
If you have bad credit, your lender may want you to provide a larger deposit. This can be somewhere around 15% – 30%.
One reason why it may be better to save for a bigger deposit is that you’ll have more access to competitive mortgage deals with lower interest rates, another being that you’re seen as less of a risk to the lender. Your mortgage is borrowed money, the more that you borrow, the more interest you must payback. To work out how much you’ll have to borrow for a mortgage, speak to a mortgage advisor.
It’s also worth saving some money aside to factor in the additional costs of buying a property. As well as your mortgage and protection advisor will offer you insurance or cover for you and your property.
With a range of different government schemes available it’s worth seeing if you are eligible for any of these schemes. One of these includes the Help to Buy Equity Loan Scheme which was designed by the government to help first time buyers onto the property ladder. As long as you provide a 5% deposit, the Government will lend homebuyers up to 20% of the cost of a new build property (40% in London).
Another scheme is the Shared Ownership Scheme which provides the opportunity for those who can’t afford a mortgage on 100% of the home. Unlike the Help to Buy Equity Loan scheme, this type of scheme allows you to buy a share of your property (usually between 10% and 75% of the home’s value) and make up the remaining share through rent. Further down the line, you do have the option to buy larger shares if you can afford to.
If you are looking for more information regarding these schemes, please don’t hesitate to contact us or book yourself a free mortgage appointment with one of our expert mortgage advisors. You can also find out more through the government OwnYourHome website.
A gifted deposit from a family member can be a great help when buying your first home, and can measure to some, or all of the deposit needed. As the name suggests, gifted deposits are given with the understanding that the money doesn’t need to be paid back.
Look at all the bills and subscriptions you currently have. You might find that you can find cheaper deals for your mobile phone and broadband packages, it’s helpful to shop around for these. More leisurely services like gym memberships or streaming services are best to look at to see if you are getting your money’s worth or if there are any other cheaper alternatives out there. By doing this, you are freeing up more money to save towards a deposit.
Buying with a friend or partner is an appropriate option for many first time buyers to get on the property ladder and can also help when it comes to saving for a deposit. Because you are buying with another person, it does make saving for a deposit faster compared to saving from a single income. However, in the case where one of you defaults, the other person could be responsible for the full mortgage.
There are different types of mortgages designed for those looking to buy a property with their friend or partner, these include:
This involves both individuals owning the whole property and having equal shares within it. If one of the owners passes away, the property will automatically be passed on to the remaining owner. From a lenders point of view, you are one unit so you both have to come to an agreement if you want to sell or remortgage the property.
This is where both owners have a particular share of the property. This can be a popular option with relatives or friends who are buying together. Because you don’t have an equal share, you can act individually and have the right to sell or give away your share.
Getting a mortgage with bad credit can be possible, however, it’s likely that you have higher interest rates which could result in you needing a bigger deposit. With this in mind, it might be best that you start by improving your credit score. Below are some of the ways you can improve your credit score:
It can be helpful to register on the electoral roll as this can show to a lender that you have stability. Make sure all the information on the form is correct with your name spelt correctly and your current address is registered. You can do this online.
Maxing out your card each month can have a negative effect on your score. It can be best to use a credit card and pay off the balance in full each month.
Paying on time and in full is a great way to demonstrate to a lender that you’re a responsible and reliable borrower. Accounts that are older and well managed normally improve your score.
It can be a challenge for companies to assess you if you don’t have a lot of credit or none at all. Some people don’t have as much of a headstart find this a problem for reasons like car finances, credit cards and bills.
If you do have any credit cards that you no longer use, it’s important that you get in touch with your providers to get the account closed. This can have a temporary negative effect on your score as the credit reference can’t decipher if you closed the account or the provider.
This shouldn’t put you off doing this as it can be a wise thing to do as it can prevent you from potential falling victim to fraud.
One factor that could have a negative impact on your score is being connected to a family member or ex-partner financially. Keep in mind that you won’t be able to do this if the account is still active. To do this, you will need to get in touch with the credit reference agency to make a request.
Here at UK Moneyman, we can provide the helping hand you need when going through the mortgage journey.
We offer all our customers a free mortgage appointment which you can book yourself in for through our ‘Get Started’ process on the website.
During this appointment, you can speak to one of our knowledgeable mortgage advisors who will provide you with the support you need towards your mortgage goals.