Buying a house is a huge financial commitment for anyone and for many people, it is the largest financial commitment they will ever make in their life. For the first time buyer purchasing a house in 2011, they are making a purchase with their hard-saved cash at a time when it is more important than ever to get an affordable mortgage since mortgages became hard to come by following the 2008 credit crunch.
Yet the whole house-buying process can be made a whole lot easier by knowing a few important titbits of information, so here are a few top tips for the first time buyer:
How much should I spend?
In years gone by, first time buyers were often advised by well-meaning friends and family to ‘stretch themselves’. This advice was often brought about by seeing house prices rising in recent years and although it worked out for some, over-stretching could be the reason why some people found themselves quickly facing financial strife when the credit crunch started.
As a result of the credit crunch, many mortgage lenders have really cut back on affordability and tightened up their borrowing criteria. Yet most will use affordability measures such as 3.5x the chief earner’s income (before deductions of tax) plus 1x the second earner’s income or alternatively, 2.5x the joint incomes – whichever calculation is the highest.
Work out how much you can afford if interest rates rise – which remember, they will because it’s at its record low at the moment.
The cost of house-buying
Everyone who buys a house for the first time remarks how much more it cost than they thought it would at first. Remember the best mortgage rates often come with high fees – speak to an independent mortgage advisor to make sure you get the best overall deal, taking into account both rates and fees. Remember that if you choose to add the fee to the mortgage, you’ll pay interest on these for the life of the mortgage, which could prove very expensive.
There is also building insurance, contents insurance, ground rent / service charges, life insurance if it is a joint mortgage or you have dependents as well as council tax and the usual bills.
Choosing your home
When you have found the property you like, see it a second time and take a friend with you. Be methodical, take notes and check things. Ignore anything like colour schemes or furnishings that don’t come with the house and instead, open cupboards and drawers in the kitchen, check the workings of the bathroom and test the central heating. Ask to see utility bills or council tax bills so you know the average cost for running the property.
How much to offer?
Once you’ve decided on the property, now is the time to negotiate. There are some good deals to be had at the moment, but your opening offer is important. Decide on your ultimate final offer before you start negotiations. If the property is on the market for £140,000 for example, and you can afford £135,000 then start the bid around £130,000. Act quickly if you feel the house is undervalued or in a hotspot, then be sure to act fast but don’t be rushed into bidding something that you can’t afford.