Want to buy your first home and have no clue where to start?
Well, you’re not alone. Nearly half a million buyers who buy their first homes in the UK each year experience some form of anxiety over what to do first… or what to do next?
So we’ve compiled a simple 7-step list to guide you step-by-step through the what, when, why, who and how. What you need, when you need it, who you need to get involved at each stage and what costs to expect.
1. Get ready, get ready
The first step is making sure that you’re ready to own. Starting with the basics: to qualify for a mortgage, ‘most’ lenders will expect you to have the following:
a steady job, often this means at least 6 months in a permanent job or 2 years if self-employed.
an income no less than a fifth (20%) of the amount you want to borrow as a mortgage. This is because most lenders will cap lending at 4-5 x your annual salary. If you earn £50,000; you’re unlikely to get a mortgage loan exceeding £200,000-£250,000. If you’re buying with a partner, lenders will often consider combined income.
a deposit of 10-20% of the value of the home you wish to buy. So if you want to buy a £300,000 home, you often need a £30,000-£60,000 deposit.
a good credit history; meaning you’re on the electoral register, up to date on your past credit commitments and have had some prior exposure to credit. Lenders like to see that you can prove that you’ve managed credit well in the past before giving you more credit. You can check your credit history with any of the 3 credit reference agencies including Experian, Equifax or TransUnion. You can also read the 10-step guide to improving your credit score for a more detailed guide.
there are also other lending requirements like the expectation that the mortgage will have been paid off before you retire. So if you’re 50, you’ll struggle to get a mortgage term extending beyond a retirement age of 65 years.
You may have noticed I stated these are requirements from ‘most’ lenders; meaning even though this is what’s required by most lenders; it does not mean that you can’t get a mortgage if you do not meet all the criteria above. Far from it, there’s often a lender that will be suitable for you if you meet some – but not all – of the requirements. After all, you only need one lender to say Yes.
How do you find the one?
That’s where free websites like MortgageLadder come in. You enter a few details about yourself and voila, like magic, you get the best matches of suggestions and products personalised just for you, saving you the stress of having to figure out everything on your own.
2. Get a mortgage agreement-in-principle (AIP)
This is sometimes called a DIP – decision in principle. Once you feel ready to own, this is the time to apply for a mortgage pre-approval, either directly with a lender or by going through a broker. You do not have to use a mortgage broker or adviser if for instance you already have a specific lender in mind you want to approach directly or if you know exactly what you’re doing. If you do decide to use a broker; you might pay a few hundred pounds for their service, but a good broker is worth the fees. The AIP is often a quick application process where the lender checks your credit history (called a credit search) and checks your affordability. If you’ve completed Step 1 above, then you have nothing to worry about here. If all goes well, you will get a letter called an AIP or DIP confirming the amount the lender is willing to lend you based on your circumstances, subject to you finding the right property.
3. Get house-hunting
Good job you’ve made it this far; now is time to go shopping- house shopping that is!
As fun as this may initially sound; it can be a very long and painful process. Make sure to not only check property prices in the area you’re looking to buy, but don’t forget to also check access to transport, amenities, crime rate, schools in the area and loads of other things you will want in your new home. You also need to consider whether you want to buy a new build property or an existing property or maybe a freehold (usually a house) or a leasehold (usually a flat). So take your time, this is an important decision!
Your AIP will often last for 3 months so for most people, this would be enough time to find a property they like.
You can use sites like Rightmove or Zoopla to search for properties in the area you want to buy in. If you see the property you like, you can then call the estate agent who listed the property to arrange viewing.
Please remember estate agents do not work for you as the Buyer. Estate Agents get paid by the Seller to sell their property for the highest price possible so keep in mind, no matter how friendly the nice gentle agent is, he or she is not on your side.
One of my favourite sites is mouseprice where you can get an indication of previously sold prices in the area. If you’re buying a new build property directly with a builder, be sure to do your due diligence, check the housebuilders reputation by ‘googling’ them to read any reviews about them. Make sure the new build has a NHBC or similar 10-year guarantee because you don’t want to end up with a house that starts falling apart a month after you move in.
Once you’ve found the home you like, then you make an offer on the property. Don’t be afraid to negotiate. What’s the worst that could possibly happen?
If your offer is accepted, congratulations, you’re about half-way through the buying process.
Yikes!
4. Get a full mortgage offer
Remember in Step 2, what you had was an agreement ‘in principle’, meaning the approval was still subject to you finding the right property, etc. Now that you’ve found a property, it’s time to remove the ‘in principle’ and get a full mortgage offer, or sometimes called an ‘unconditional offer’.
To do this, you or your broker will submit a more detailed mortgage application with full property details and the lender will often at this stage also ask for evidence of your employment, income (payslips), proof of your deposit, etc
The Lender will also want to carry out a survey on the property to be sure that it’s worth what you’re paying for it. At this stage, they will ask you to pay a survey fee (budget £200 -£500). If all goes well with the survey and your documents stack up, you will get a full mortgage offer.
Hooray! This full mortgage offer will usually last for about 6 months allowing you time to complete the remaining stages of the buying process.
5. Get a solicitor
Now things are getting even more real. This process is often called conveyancing, where the Solicitor or Conveyancer conducts searches on the property to find out about the property history, check the title documents are in order and ask all the legal questions needed before transferring ownership to you. In most cases, the Solicitor will also be acting on behalf of the mortgage lender.
Solicitor fees can vary considerably from £400 to over £3,000. One good panel of Solicitors we’ve worked with many times is called Homeward Legal. We like them because they have a long list of reputable solicitors on their panel, they are affordable (budget £500-£1,000) and come with a no-fee, no-completion guarantee meaning if the purchase doesn’t go through for an unforeseen reason, your fees are refundable or reserved until you find another property.
In addition to the solicitor fees, the solicitor will also ask you to pay for ‘disbursements’, i.e. things they need to pay for on your behalf like the cost of searches and where applicable, the cost of Stamp Duty Land Tax.
6. Exchange and completion
At the end of the conveyancing process and if your solicitor is happy with everything, you will exchange contracts (i.e. you sign the legal contract between you and the seller). At the points of contract exchange, you will also usually be required to transfer a deposit of 10% of the home purchase price. After exchange of contracts is a process called ‘completion’. This is when the keys to the property is handed over to you. Often there’s a 1-2 weeks gap between exchange and completion to allow the seller time to move out.
7. Post-completion
Time to pop that chilled champagne bottle. You’re now a homeowner and very well deserved!
As you celebrate, don’t forget there are a few post-completion items to tidy up. For instance, remember to:
Check your completion statement if any refund is due to you from your solicitor
Get a metre reading for gas and electric utilities on the day you move in so you don’t end up paying the bills of the previous owner
Register on the electoral roll at your new address
Say thank you to anyone who’s helped you in the process
We have a full checklist of everything you need to do from start to finish on the MortgageLadder website with easy links to where you need to go. So if you haven’t yet signed up, what the heck are you waiting for?
Thanks for reading and if you found this helpful, please share with others.