Before you set foot inside an estate agent you need to draw up your wish list, including things you are prepared to compromise on.
- Where do you want to live? The location of a property is essential, particularly when it comes to reselling.
- Is it convenient for travelling to your place of work?
- Are there good schools nearby? If you are planning on having children, then it makes sense to check this out to avoid having to move again
- What sort of accommodation do you need? You need to consider how many bedrooms you want and whether you prefer a house or a flat
- What age of property are you looking for? Do you want a problem-free new build, or are you willing to roll up your sleeves and get stuck into some serious DIY?
- Do you want a garden and/or outside storage such as a garage?
- Do you want to be near to shops or bars and restaurants?
How much can I afford?
The next step is to work out how much you can afford to pay for your new home.
Paying off the loan to buy your home will be your largest expense, but it’s not the only thing you have to budget for as a homeowner.
The cost of your mortgage is spread over a period of years – usually 25 – but there are a number of upfront, one-off costs you’ll also have to meet to move up the homeowning ladder.
Putting down a deposit
You should aim to put down at least 5 per cent of the cost of the home you plan to buy, preferably more, as deposit. Some lenders charge what is called a higher lending charge (HLC) on larger loans, of over 95 per cent, for example.
As well as avoiding an HLC fee, getting together a substantial deposit also means you reduce your monthly repayments in the long run.
After all, the smaller the loan, the less interest you pay. Use our homebuying calculators to help you work out how much your monthly payments are likely to be for the amount you are borrowing.
Think about whether the rate you’re using in your calculations is what you’ll be paying for the full term. Bear in mind, also, that rates can go up.
How much would you be paying if rates rose by, say, 2 per cent? Rates are unlinkely to reach the 15 per cent mark as they did in the early 1990s, but they will go up.
If you can’t afford to save up for a deposit some lenders will loan you a 100 per cent mortgage.
How much can you borrow?
The amount you can borrow will be based on the size of your deposit and how much you earn. Remember that if you are self-employed you will need to supply proof of your income.
Lenders are usually prepared to lend you around three times your annual earnings. If you are buying as a couple this rises to three times the first income plus the second income, or two and a half times your joint income.
You also need to calculate how much you will need to cover homebuying and selling costs.
