Are you considering buying your first home? If so, you’re likely wondering where to start and what to expect. In a world of credit scores, LTV and mortgages, the process of buying a home can seem daunting, but it doesn’t have to be.
Here are 15 questions commonly asked by first-time buyers to help get you started.
Let’s start simple! What is a mortgage?
A mortgage is a long term loan that is secured against the home you are buying. Secured means that if you default on the mortgage payments, your home could be repossessed (taken back) by the lender. The amount of money you can borrow with a mortgage will depend on your income and outgoings, as well as the value of the property.
As it’s a loan, the lender will charge you interest on the amount you borrowed. This is paid monthly along with an extra amount that slowly pays back the debt.
The interest rate you pay on your mortgage will affect how much you end up paying back in total. Mortgages can be arranged over 25-40 years.
You will find more useful information in our article: What’s the longest mortgage term you can get?
Table of Contents
- What is a mortgage?
- What is an Agreement in Principle?
- What is Stamp Duty?
- Why do I need a solicitor?
- What paperwork will I need when I apply for a first time buyer mortgage?
- What does LTV mean?
- What different types of mortgages are available?
- What help is there for first-time buyers?
- What is a guarantor?
- What happens if I’m self-employed?
- What other costs are involved in getting a mortgage?
- My deposit is a gift, is this okay?
- Do I need life insurance?
- Do I need home insurance?
- How much can I borrow?
What is an Agreement in Principle?
An Agreement in Principle is a document provided by a lender which states how much they would be willing to lend you based on a number of factors such as your income, outgoings and credit history. It’s important to note that this isn’t a guarantee that you will be offered a mortgage, but it will give you an idea of how much you could potentially borrow.
If you’re looking to buy a property, getting an AIP from a lender could be a good first step in your journey. It could give you some peace of mind knowing that you’re on the right track when it comes to your finances and borrowing power.
Estate agents and sellers may also ask to see an AIP before they accept an offer from you, as it gives them reassurance that you’ll be able to get a mortgage.
What is a mortgage Decision in Principle?
Should you get more than one Decision in Principle?
Is a mortgage illustration the same as a mortgage offer?
What is Stamp Duty ?
Stamp Duty is a government tax that’s payable on properties bought in England and Northern Ireland. The amount you’ll need to pay depends on the value of the property, with higher prices leading to higher Stamp Duty bills.
There are different rates for different parts of the property market, so it’s important to calculate how much Stamp Duty you’ll need to pay before making an offer.
First-time buyers can claim a discount on properties worth up to £425,000 (since 23/09/2022), which means they won’t need to pay any Stamp Duty on this portion of the purchase price.
Why do I need a solicitor?
A solicitor is a legal professional who helps you with the legal aspects of buying a property. This includes checking all the legal paperwork is in order, helping you to understand your mortgage contract and dealing with the Land Registry when it comes to transferring the ownership of the property.
A solicitor will handle all the legal elements of your purchase like completing searches, creating contracts and transferring money. The choice of solicitor is yours, but it’s an important one, so make sure you do your research.
There are a few things to consider when choosing a solicitor when buying a property. These include whether they offer a fixed fee service, how much experience they have and whether they’re on the panel of your chosen mortgage lender.
You’ll want to make sure that the solicitor is experienced in conveyancing, as this is the legal process associated with transferring ownership of a property. You’ll also want to ensure that the solicitor is accredited by the Law Society, which is the professional body for solicitors in England and Wales.
What are the different stages of conveyancing?
What paperwork will I need when I apply for a first time buyer mortgage?
When you apply for a first time buyer mortgage, you’ll need to provide a range of documents to prove your identity, income and outgoings. This paperwork will include things like your passport, payslips, bank statements and proof of address.
You’ll also need to provide information about the property you’re buying, such as the purchase price and the mortgage deposit you’ve saved. The lender will use this information to assess how much they’re willing to lend you.
It’s important to make sure that you have all of the required documents ready when you apply for a mortgage, as this will help to speed up the process.
First Time Buyer Guide
We have written this guide to show you the process of buying your first home with a mortgage.
Guide To Deposits
Our guide explains what a mortgage deposit is and how it affects your mortgage choices.
Applying For A Mortgage
We explain what happens at each step, including what documents are needed.
What does LTV mean?
LTV stands for ‘loan to value’. It’s a ratio that’s used to describe the amount of your mortgage compared to the value of your property.
For example, if you’re buying a property worth £200,000 and you have a mortgage for £150,000, your LTV would be 75%. This is because you’re borrowing 75% of the value of the property.
The higher your LTV, the riskier your mortgage will be seen by lenders. This is because there’s a greater chance that you’ll end up owing more than the property is worth if house prices fall.
That’s why loans with high LTV ratios often have higher interest rates.
What different types of mortgages are available?
A mortgage needs a term, an interest rate and a repayment method. We’ll explain each one in turn.
The term is the length of time you have to repay your mortgage over. The most common terms are 25 years, 30 years and 35 years. However, some mortgages have terms of 40 years or more.
The interest rate is the amount of interest you’ll pay on your mortgage, expressed as a percentage. Mortgage rates can be fixed, variable or tracker.
Fixed-rate mortgages have an interest rate that stays the same for a set period of time, typically two, three or five years. This gives you certainty over your monthly payments during this period.
Variable-rate mortgages have an interest rate that can change over time. This means your monthly payments could go up or down depending on changes in the market.
Tracker mortgages have an interest rate that’s linked to another rate, usually the Bank of England base rate. This means that when this rate changes, your mortgage interest rate will change too.
The repayment method is how you’ll repay your mortgage each month. There are a few different methods, the most common is repayment (where you pay off a portion of both the interest and the capital each month) and interest-only (where you only pay off the interest each month).
It’s a good idea to familiarise yourself with different interest rate options and how these could affect your monthly payments.
Mortgage Repayments Guide
Learn more about the monthly cost of different mortgages, including repayment and interest only.
Mortgage Types Guide
Not sure which mortgage is right for you? Our guide to the different mortgage types will help you to decide.
Mortgage Repayment Calculator
Our mortgage repayment calculator gives you a good idea of what your monthly mortgage payments might be.
What help is there for first-time buyers?
There are a variety of schemes that you might be eligible for, such as Help to Buy and Shared Ownership, which you can read about on the government’s Own Your Home website. The Help to Buy equity loan scheme stopped accepting new applications on 31 October 2022, before closing completely on 31 March 2023.
The government First Homes scheme was announced in June 2021 and aims to help first-time buyers in England purchase their first home. The scheme will see a number of new-build homes go on the market and be sold at a discount to eligible first-time buyers.
First time buyers also benefit from reduced stamp duty.
What is a guarantor?
A guarantor is somebody who agrees to be responsible for repaying your mortgage if you can’t. This could be a parent or close family member.
If you’re thinking of using a guarantor, it’s important to make sure that they understand their responsibilities and are comfortable with them. A guarantor mortgage arrangement can be useful for people who might struggle to get mortgage approval due to their financial situation, as it improves the mortgage affordability. It’s also worth bearing in mind that if you do default on your mortgage, it could damage your relationship with the guarantor.
The guarantor will need to be able to prove their income and have a good credit history. The guarantor may also be asked to provide security, such as a property or savings, to cover the loan.
How does a Joint Borrower Sole Proprietor Mortgage work?
What happens if I’m self-employed?
If you’re self-employed and looking to get a mortgage, there are a few things you’ll need to take into account. Lenders will typically require proof of income and tax returns for the past three years in order to assess your affordability. They will also ask for additional information such as bank statements and invoices.
It’s important to remember that self-employed applicants may be considered higher risk by lenders, so it’s worth shopping around to find a deal that’s right for you. We can assist you to navigate the mortgage process.
There are a number of lenders that understand how self-employment works and the different variations. This means that they can offer CIS mortgages for subcontractors in construction and company director mortgages for shareholding directors.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
What other costs are involved in getting a mortgage?
Aside from the deposit and the mortgage itself, there are a few other costs to consider when taking out a mortgage. These include:
Valuation fee: This is paid to the lender in order to assess the value of the property.
Arrangement fee: This is a one-off fee charged by the lender for arranging the mortgage.
Higher Lending Charge: The higher lending charge is affected by your loan to value.
Legal fees: You will need to instruct a solicitor or conveyancer to carry out the legal work associated with your purchase.
Stamp duty: This is a tax that is paid on property purchases over a certain price threshold. First-time buyers in England and Northern Ireland are currently exempt from stamp duty on properties up to £425,000.
Survey fee: This is paid to a surveyor in order to assess the condition of the property. There are different types of surveys available, so it’s worth speaking to a few surveyors to see which one is right for you.
Broker fee: Your broker will charge a fee for researching your mortgage options and applying for the mortgage.
Do you need a survey to get a mortgage?
Who organises a survey when buying a house?
You will find more useful information in our: “Guide to Mortgage Fees“
My deposit is a gift, is this okay?
The answer is yes, gifts are perfectly acceptable as deposits for mortgages, as long as they meet certain criteria. Your lender may also require you to fill in and sign a gifted deposit letter or declaration as proof.
The deposit must be a genuine gift from a close family member such as a parent, grandparent or sibling. The gifter must not require the money to be repaid at any point and they must not benefit from the property in any way, such as living there rent-free.
If you’re thinking of using a gifted deposit, it’s important to speak to your broker first to check that they’re happy with this arrangement. They will be able to advise you on the best way to proceed.
Instead of a gifted deposit, you may be able to take advantage of a family offset mortgage, which uses savings from your family to offset the mortgage debt, reducing the interest.
A family deposit mortgage, or springboard mortgage, can also use cash savings from parents in place of a cash deposit, effectively creating a no deposit mortgage.
Or a concessionary purchase mortgage can be used to buy a property from your family at a discounted purchase price.
Do I need life insurance?
If you have a mortgage, it’s important to make sure that you’re properly protected in case of your death. This is because if you die, your mortgage will still need to be paid off.
There are two types of life insurance to protect a mortgage:
Decreasing term insurance – With a decreasing term policy the premiums are fixed for the policy term but the amount of life cover decreases each year. This is appropriate cover for a repayment mortgage.
Level term insurance – A level term policy also has fixed premiums but the cover (death benefit) will stay the same for the whole policy. This can be used to protect an interest only mortgage or a repayment.
Do you need life insurance to get a mortgage? – Lenders may ask about your life cover arrangements but they are not allowed to force you to have cover.
Will your mortgage be paid off in the event of your death?
Do I need home insurance?
If you own your own home, it’s important to make sure that you’re properly protected in case of fire, flood or other damage. Buildings insurance covers the cost of repairing or rebuilding your home if it’s damaged by an insured event.
Your lender will usually require you to have buildings insurance in place before they release the mortgage funds. This policy covers the structure of the property and items that are fixed.
Contents insurance is optional and covers furnishings, personal possessions, furniture, electrical items etc.
Do you have to have home insurance with a mortgage?
How much can I borrow?
This depends on a number of factors, such as your income, outgoings, credit history and the type of property you’re looking to buy. Lenders will typically lend up to four-and-a-half times your annual income.
If you’re self-employed, the amount you can borrow may be calculated differently. This is because your income may be less predictable. Your broker will help you to understand how much you could borrow and find a mortgage that’s right for you.
Does a student loan affect your mortgage?
How much does the average mortgage cost?
Does an overdraft affect a mortgage application?
How Much Can I Borrow?
Our mortgage calculator will give you an idea of how much you could borrow for a residential mortgage.
Mortgage Repayment Calculator
Our mortgage repayment calculator gives you a good idea of what your monthly mortgage payments might be.
Credit Report Guide
Understanding your credit report is an important step in maintaining your financial health and getting a lender to say yes.
In summary
Buying a home can be an exciting but daunting experience. These 15 questions are a good starting point for first time buyers, and will help you to understand the basics of mortgages, agreements in principle and stamp duty. If you have any more questions, don’t hesitate to get in touch with one of our experts who will be happy to help.
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