Tuesday, 3 November 2015

Budgeting



This is going to be my first blog post about buying a house. I'm going to start with how to set your budget which needs to be decided before you get excited and start heading over to Rightmove to lust over your dream house.


The first thing you should do is seek advice from an independent mortgage advisor. An advisor that works out of a bank is there to sell you the product of that particular bank, whereas an independent advisor is impartial. They will look at a range of products on the market and find the mortgage which meets your individual needs best. An independent advisor can be found easily online or working from an estate agents office.

In your initial meeting your financial situation will be reviewed. This is a great opportunity to learn and understand more about mortgages too. There’s lots of jargon to get your head around. At the end of the post I have added some common terms used when talking about mortgages which will also be added to my glossary page.

Things to think about before you have your first meeting are:
-       Deposit – how much have you got stashed away
-       Manageable monthly payment you could afford on top of all your other commitments and general living expenses
-       How old you are – this determines over how many years can borrow. 
-       Current monthly outgoings – for example loans, credit agreements, memberships and subscriptions
-       Credit rating – obviously the better this is the more likely you are to be accepted for a mortgage and how much they may lend you. Check your credit rating for free on Noddle. If it isn’t great, take steps now to improve it.


So to make things easier, it would be a good idea to take the following with you to your initial meeting (this is to provide evidence for everything you’re saying)
-       3 months recent bank statements
-       Last 3 months payslips (or 2 years business accounts if self employed)
-       Last P60
-       Proof of ID (passport or driving licence)
-       Proof of address (recent utility bill)

Once you have had some advice you'll have more of an idea of how much you can afford on your new house! Plus when you're making offers on houses later down the line you may be asked about what advice you have had and if you have a mortgage in principal. Some agents may not even let you make an offer without providing a mortgage in principal.

Buying a house is the largest financial decision you will make in your life - you can never do enough research and preparation to ensure your experience is a smooth one - it's in your hands to get motivated and get the ball rolling.

Glossary of terms
Deposit: The up front payment towards property purchase price. Starting as low as 5% of the purchase price. The more you put down the less you need to borrow.
Arrangement fee: A set-up fee for your mortgage, usually this can be added to the amount you are borrowing.
Base rate: A rate of interest set by the Bank of England. Tracker mortgages and lenders’ variable rates usually follow.
Fixed-rate mortgage: the interest rate stays the same for the period of the deal you sign up for e.g. 2 years. Each month for the term you will pay the same amount.
Tracker Rate Mortgage: the interest rate will be linked to a base rate, which it moves up and down with. Each month you will pay a variable amount depending on this base rate.
Interest Only Mortgage: Only the interest on the mortgage is paid each month which means the amount you borrowed does not reduce over the term. You will need to ensure you have a means to repay at the end of the term.
Mortgage Term: the length of time the mortgage is proposed to run.
Portable Mortgage: Your mortgage can be transferred to a new property if you decide to move in the term.
Repayment Mortgage: monthly repayments include interest and repayment of the loan. The amount you owe will reduce over time.
Mortgage in principle: An indication from a provider of how much you could borrow.
Mortgage Offer: a formal written offer from your mortgage provider stating how much you can borrow and how much the repayments will be.

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