Choosing a Mortgage as a First Time Buyer

Buying your first home can be a daunting and exciting prospect at the same time. The best way to deal with the ‘daunting’ part is to make sure that you base your decisions on the best possible information and that you ‘do your homework’ by researching all your options as you move towards the first step on the property ladder. This is made more difficult by the sheer amount of jargon-filled information that you are faced with as soon as you indicate that you are investigating your first mortgage.

It is quite easy to lose yourself in all the information that is available or to simply ‘fall’ for the first lender that makes a semi-persuasive case. It would therefore be a very good idea to set out a clear roadmap of how you would like to approach the process. This will prevent you from getting sidetracked by all the available options. A possible roadmap could perhaps include the following:

• Determine how much you can afford. The answer to this question will, to a large extent, determine your house-hunting and mortgage options. One part of the question is easily answered. Mortgage lenders will currently lend around 3.5 times annual income to individual first time buyers, and 5 times annual income to joint buyers. The other part of the question is more complex and will require a bit of homework and an honest assessment of your financial state. It is: “Would I be able to afford the repayments if I borrow X amount?”
• Get an agreement in principle. Most mortgage lenders will be able to supply you with an ‘Agreement in Principle’ to assist you with the house-hunting process. Having this in hand will show estate agents that you are serious about finding a property. It could also help to flag up any credit problems even before you make a formal mortgage application.
• Determine the size of your deposit: Lenders will require a deposit to be paid before a mortgage is formally issued. The size of the required deposit will differ from context to context and institution to institution but expect to pay at least between 5 – 10%. It would be a very good idea to pay more than this if you have the funds available since a large deposit can sometimes translate into a slightly lower interest rate.
• Choose the best product: There are a huge number of choices that you will have to make before deciding on a mortgage product. Some of these include: Fixed rate vs. variable rate, repayment vs. interest only and also what you would like to term of the mortgage to be.
• Decide on any ‘extras’ that you would like to be included with your mortgage: All mortgages are not created equal and there are some ‘non standard’ features that you may want to request from your lender. Some possibilities include:

• The ability to ‘underpay’ if necessary without being penalised
• The ability to ‘overpay’
• The option of taking ‘payment holidays’
• The option of having fees associated with the home buying process added to your mortgage
• Having your interest calculated daily (this can translate into a significant saving over time)

Once you have done your homework all that is left would be to find the home of your dreams and to formally apply for the mortgage from the institution of your choice. If you feel however that you will need constant advice and the ability to access a huge variety of possible mortgage deals it might be worth your while to consider using a professional mortgage broker. He/she might be able to put you in touch with lenders that specialise in ‘first time buyer’ mortgages and that can therefore tailor a package around your specific needs.

Summary:

• The first step in choosing the right mortgage is to determine how much you can afford, both in terms of the asking price and your monthly repayments.
• It is a good idea to get an ‘Agreement in Principle’ before beginning the ‘house hunt’
• There are many different options that you will need to choose from in getting the best possible mortgage. Be sure to make decisions on the basis of what is best for you and not on what the lender wants to sell to you.
• There are many ‘extras’ that you can add to your mortgage. Be clear about what you want before you formally put in your application.

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