What Do First Time Buyers Need To Know
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Are you asking about What first time buyers need to know? We look at the buying and mortgage options available and what you need to prepare.
What you need to know about buying your first home
Purchasing your first property is a significant moment in everyone's life. It's not uncommon to spend hours upon hours just searching through different property sites so you can assess all the potential options and see which options you will be able to afford.
Before you can begin the next step in this exciting journey, we would recommend reading up and collecting as much information as you can about all the financial aspects of purchasing a home.
This can include figuring out exactly how much money you can borrow, how saving for a deposit works, how to correctly choose the mortgage that's right for you, and working out the amount of stamp duty you will have to pay.
How much can I borrow?
In the past decades, lenders would take your annual income and multiply it in order to work out the amount that would be acceptable to lend to you—these days, the process is much more focused on affordability.
Of course, income is still a key part of the considerations, but the amount will be compared against your outgoing costs so that the lender can construct a full image of your finances. Lenders will deeply scrutinise your fixed spending. This includes aspects such as your loans or credit card repayments.
This is because these cannot go through the process of being reduced or stopped in the way that other spending can. The lenders will be less worried about discretionary spending, for example, the costs of eating at restaurants, as this is money spent that can very easily be reduced.
Unfortunately, even if you have only a small amount of debt or none at all, you might still fall on the wrong side of the affordability checks. This is because lenders will usually stress-test your finances in order to see whether you can afford an interest-rate hike.
The amount that you can borrow will be decided upon after seeing the deposit you can afford to put down, as well as the affordability of the loan and the overall loan-to-value. The intricacies of the loan-to-value, also known as the LTV, will be discussed later in the guide.
How much deposit will I need?
Within the current market, you will need at least a minimum of five percent. Although the more money you can get together, the better it will look.
Putting down a larger deposit has various benefits. Firstly it means that, ultimately, you are borrowing less money.
Even if this amount is just slightly smaller, with interest rates, the difference can be large. Larger deposits also mean you will have access to a much higher number of lenders.
This essentially means that you will have more choices. Finally, another benefit of a higher deposit is that it is much more likely for you to receive a better rate.
Finding the money for a property deposit is not an easy task, and this means that there is no quick fix.
Some individuals looking at purchasing a property will be lucky enough to be given money from their families. Still, for the majority, the key is simply to cut back, save, and look where money is being spent.
Some will even try to earn extra money by taking a second job.
No matter what your plan may be, the fact of the matter is that if you do not put down some kind of deposit, then it is highly unlikely that you will be offered any kind of mortgage.
There are many different options for mortgages when you are looking at purchasing your first property. It is of the utmost importance that you are aware of all your options and what they can mean for your home and your future before you dive in.
What does loan-to-value (LTV) mean?
When speaking with lenders, you may often hear them discuss the loan-to-value or LTV on a property. In simple terms, the explanation of this is the size of the loan in comparison to the value of the property.
So, for example, if a mortgage is ninety percent LTV, then you will need to have a ten percent deposit.
In order to work out the total deposit needed, you will first have to know the value of the property. Then you should get a calculator and subtract the loan-to-value from this amount.
So here is an example. If the value of the property is £400,000 and the mortgage is 90% LTV, then all you have to do is take away the 90% from the £400,000, which will then lead you will £40,000.
This is the amount that the deposit will need to be in order to ensure that you can get a mortgage.
If the figure that you discover after doing all of your sums is much more than the amount that you have saved so far, then you will have some options.
You can either find a mortgage with a higher LTV, try to negotiate the price of the property to a lower number, locate a property that is cheaper, or just try to save up more money.
What Is Stamp Duty?
Stand Duty Land Tax, also known as SDLT, is the tax that you legally must pay when you purchase a property or a piece of land over a certain price in the United Kingdom. The amount that you will need to pay is dependent on the value of the property.
However, you will find that first-time buyers do not have to pay any stamp duty on the first £300,000, right up to the value of £500,000. A rate of 5% is applied, but it only applies to that portion of the purchase. Meaning nothing below the £300,000 threshold. In order to be eligible for this discount, you must never have owned a property
This includes properties that have been gifted or inherited. You will also need to love within the home you are buying and will not have the option of renting it out.
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