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How To Buy Your First Home

Buying your first home will be one of the biggest financial transactions that you will ever make.

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Where to start

You'd think going to the local estate agent would be the first port of call but if you are serious about buying your first home you should look to sort out your finances first.

Having a deposit to put down on the property is vital if you require a mortgage. An independent financial adviser can assess how much money you will be able to borrow based on what you earn, and that of your partner, if you are buying together combined with the amount of money you have saved up for a deposit.

Generally, a first time buyer looking to secure mortgage finance will need a minimum of 25% of the purchase price to place as a deposit. But the bigger the deposit, the cheaper the rate of interest on the mortgage so it's best to save as much as you can and to delay buying until you can get the best mortgage rate available.

As a rule of thumb, if you are buying on your own then you should be able to borrow around 3.5 x your annual salary. If you are buying with your partner, applicants can normally borrow 3.5 x the main annual income + the second income or 2.5 x joint annual incomes.

Get free, impartial advice from a mortgage adviser from an FSA regulated firm »

Finding your first home

Estate agents may not have the best of reputations but once you know how much you can borrow then they are likely to be your next port of call when it comes to finding your first home, either online or direct in the high street.

It really is all about location, location, location. As well as buying a home for you if you are not planning to stay there forever then you should also think about buying a home somewhere someone else will want to buy when you come to sell.

Estate agents are the ultimate fountain of knowledge when choosing a place to live but remember they are employed by the vendor, the seller, to get the best possible price for the property.

As salesmen they are super canny and know every trick in the book so you need to keep your wits about you.

Auctions and private sales

You can also buy your first home by auction or a private sale.

But despite the potential bargains to be had buying at auction is not recommended for first time buyers. As a bare minimum you need 15% of the final sale price to pay on the day of the auction if you are successful in your bid and if the sale does not complete in 28 days you could lose your deposit.

Private sales cut out the estate agent, saving the seller a fee, but can prove daunting for buyers, especially if the seller is not experienced.

Making an offer

Once you have your provisional finance in place you will need to make an offer. It's unwise to go straight in at the asking price as there should always be room for negotiation so always aim a little lower in the first instance. Remember though, if you are dealing with an estate agent they are working for the person selling the home and you may not be the only interested buyer. Set a budget and a price you can afford and stick to it. If you miss out on your first property there will be plenty more, and maybe better, to choose from.

Next steps

You need a solicitor or a specialist company to do the conveyancing for you - checking all the legal aspects of the sale. In order to obtain your mortgage you will also need a basic survey to check the value of the home.

A simple check on the Land Registry website should also tell you how much the seller paid for the property. For the small fee involved (around £30) this can be an invaluable tool in your armory when it comes to negotiating the right price.

Other and ongoing costs

You will also need to arrange buildings insurance as well as life insurance if you have a joint mortgage or dependents.

Shared ownership

Can't afford to buy outright? Help is at hand. Shared ownership allows you to buy a share in a house or flat from a housing association or Registered Social Landlord.

You still have to get a mortgage but the rest of the share is funded through paying a subsidised rent to the RSL. This means you pay a smaller deposit than you would normally for open market purchases, and can make combined mortgage and rent payments more affordable.

Traditionally estate agents have not had any involvement in shared ownership with local authorities and housing associations marketing the bulk of property themselves.

HomeBuy

The most common form of shared ownership is through HomeBuy schemes and these are open to households earning less than £60,000 a year who would otherwise be unable to buy such as first-time buyers; previous home owners who can't now afford to buy without help, for instance they might have suffered a relationship break-up; housing association or council tenants and public sector workers, such as nurses or teachers.

There are three HomeBuy options: "Social HomeBuy" helps council and housing association tenants buy a share of their home at a discount if their landlord offers the scheme.

"Open Market HomeBuy" helps people to buy a property on the open market through an equity loan and "New Build HomeBuy", which helps people to buy a share of a newly built property and pay rent on the remainder.

Rent to Homebuy is becoming increasingly popular.

There are certain newly built properties that clients can rent at an affordable rate - 80% (or less) of the market rent - for up to five years. The Rent to HomeBuy scheme is designed to give clients enough time to save for a deposit to buy the property. In doing so they then have the first option to buy the property at any time during the tenancy or at the end under the New Build HomeBuy scheme.

To go for this option you would have to pay for at least 25% of the property through savings and / or a mortgage.

At the end of the day...

Buying your first home is a daunting task and not one to be taken lightly. But if you get it right the rewards will be both lasting and beneficial.


THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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