The biggest single purchase and financial commitment you will ever make, will be buying your first home. As a first time buyer of a home, it is important to fully understand the pitfalls and learn to navigate the jargon of mortgages. Most importantly, to get the property of your dreams and mortgage that best suits your needs.
Successfully navigating the mortgage market can be especially daunting for a first time buyer of a home. The two most important decisions you will initially have to make is the size of your mortgage and the type of mortgage you are looking for. Both need to fit your financial profile and long-term ability to pay the mortgage. Buying a home and having a mortgage are a long-term commitment and there is no need to rush into any decision-making.
There are literally thousands of mortgage deals to choose from. This is good news for the borrower, as it means that prices are competitive and you can find the right package to suit your budget and needs. One of the first things that you will need to do is to find out how much you can afford to borrow. This number will help you determine not only the size of mortgage you will be able to obtain, but also the amount you can spend on a home of your own.
Even if finance or maths are not your strong point, there is no need to worry. There are many simple ‘affordability calculators’ available online that can instantly calculate what you can afford. Otherwise, you can approach any high street building society or even your bank to have them do the calculation for you, at no cost. The rule of thumb is that most people can borrow somewhere around two to three times their annual salary – for married couples, two and a half times the joint annual salaries.
Don’t get caught up on the maximum amount you can borrow or how much lenders are willing to lend to you, because you will have to also calculate additional costs, such as renovating the house, council tax, perhaps higher utility costs, higher commuting costs, increase in interest rates and so on. These should all be calculated into your overall budget, so as not to stretch your financial limit to the fullest. Unseen events or expenses can occur at any time and you don’t want to be mortgaged to your maximum.
It may not be possible to buy your dream home right away, as many first time buyers may not have the cash available for a large down payment and need a 100 per cent mortgage. Perhaps cheaper mortgage rates in the early years are more important to you, such as capped mortgages, or maybe you want the security of a guaranteed mortgage interest rate, which will provide peace of mind by ensuring that monthly mortgage payments do not fluctuate, such as fixed mortgages. There are numerous mortgage packages designed especially for first time buyers and it is prudent to look into these deals to see which ones fit your borrowing needs. For example, 100 per cent mortgages or fixed or capped rate mortgages, are usually unavailable to non-first time buyers.