Guide to home buying
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Introduction - A guide to home buying
1. How much can you borrow and how much can you afford?
2. Where and what to buy?
3. The right mortgage for you
4. Appoint a solicitor
5. Making an offer
6. Move in
Things to think about
A Guide to Home Buying
A new home is more than just bricks and mortar; it’s something we invest in emotionally, as well as financially. No wonder the journey from viewing a property to putting the key in the door for the first time can seem stressful.
Yet, if you plan ahead and get some help along the way, you could make it a bit less complicated. This guide is designed to act as a starting point to help you take some of the stress out of the home-buying process.
You’ll find tips and information to get you started on everything from budgeting and the buying process, to choosing the property itself, renting it out and paying off your mortgage so you can buy your new home with confidence.
Bear in mind, this guide is not meant to replace legal advice. If there is anything that you are unsure about we recommend that you speak to a legal adviser.
How much can you borrow and how much can you afford?
Before you start looking at properties, it’s a good idea to talk to a mortgage lender to find out how much you might be able to borrow and how much it will cost. The larger your deposit, the more likely it is that you’ll pay a lower rate of interest or maybe less fees.
The amount you can borrow – your mortgage – plus your deposit, gives you a guide to the house you can afford. Your lender should be able to give you an 'agreement in principle' so you can start house hunting.
In the past, how much you could borrow was based on your income. These days lenders calculate the amount they're prepared to lend based on affordability. So they'll look at your household income and take into account your regular financial commitments, such as credit card and loan repayments, and other personal circumstances.
Your mortgage payment is likely to be one of your largest regular financial commitments so you'll want to make sure it's within your budget. Remember that when you buy a home you'll have other financial commitments as well – including council tax, utility bills and home insurance. Make sure you don't stretch your finances to the limit.
There are lots of free online mortgage calculators that will give you an idea of what you may be able to borrow and afford, you’ll find all of ours at rbs.co.uk/mortgages
This is also a good time to look forward and think about your plans for the future. Are you thinking of starting a family sometime soon? Will you still be able to afford your mortgage payments if your income was to change? Also, interest rates are low at the moment but will likely start to rise again at some point.
Think about how a rate rise of just 2%, for example, would affect you. Would you still be able to make your repayments? There are different products which could help by fixing your rate and payments for a set period of time to help give you peace of mind.
It's important to:
• Decide what you’re looking for
• Register with estate agents
• Visit properties you like
Where and what to buy?
Your ideal home - country mansion or city apartment?
For many of us, our ideal home is the one that's just beyond our reach. We can always dream, but most of the time home buying decisions are driven by what we need and what we can afford, so spend time researching where you want to live and what sort of property you want to buy.
Some people might say that location is everything, but property type is important as well. Think about the features that are essential to you: the number of bedrooms, off-street parking, access to work and transport links, and closeness to local amenities like shops and schools. And keep a separate list of features that are desirable, such as a garage or garden. When you see a house, give it a score based on your lists.
Decide whether this is your ‘forever’ home or whether you’ll live there for just a few years before trading up or down. If you’ll be staying put for a while, ask yourself whether it would still be suitable if things changed, for example if you have a baby and need room for a nursery.
Even if you don’t plan on moving in a hurry, it might still be worthwhile considering how easy it will be for you to sell your new home. For example, are there enough bathrooms for the number of bedrooms?
Remember, larger, older houses cost more to heat and might mean higher Council Tax. Newer houses are generally cheaper to maintain for the first few years.
Finally, speak to as many local estate agents as possible and ask them to send you details of properties on a regular basis. You can also search yourself, using local newspapers and the internet.
Decide how much you can afford and stick to it. Be prepared to walk away.
The right mortgage for you
When you've found the right property, make an offer through the estate agent. Remember, the sale price is what the seller hopes to get, not necessarily what they realistically expect - and you may be able to agree a lower price. Your offer should be 'subject to survey and subject to contract'.
If you’re already a homeowner, you should consider holding off looking at properties until you have agreed on the sale of your current home. If you aren’t selling another property you may be in a strong position to negotiate on the price. This could also apply to having a mortgage that’s ‘agreed in principle’ – what the lender says it will probably give you, based on certain terms and conditions.
Be prepared to walk away. Decide how much you can afford and stick to it. Also, if a survey highlights problems, don’t be afraid to negotiate downwards.
Remember - mortgages come with features and conditions, so make sure you understand them before you make a commitment. These include:
Early Repayment Charges – if you move lender or change product when you are still within the initial deal period, e.g. in year one of a two year fixed rate deal.
Repayment holidays/underpayments – remember that interest will continue to accrue during any payment holiday or period of underpayment and your monthly payments may increase afterwards.
Overpayments – pay more towards your mortgage to reduce your mortgage balance. There may be limits on the amount you are allowed to overpay, e.g. 10% of the outstanding mortgage balance per year.
Cashback offers – some mortgages may include an incentive amount that is normally payable to you on completion.
Finally, think about life insurance as well as accident, sickness and unemployment insurance to cover your mortgage payments. You'll also need to insure your new home and belongings.
Appoint a solicitor
A solicitor or conveyancer will manage the legal transfer of a property from one owner to another and it makes sure that you have proper legal title. They'll also carry out all the necessary land searches to check for past and potential problems.
Your solicitor will obtain all the legal documents, including a contract for sale and an inventory list from the seller. This tells you exactly what is included in the purchase price - such as carpets, curtains or kitchen appliances. A solicitor will also confirm the property's legal boundaries.
Once everything is in order, your solicitor will search local planning information to check there are no planned developments that could affect the property's value. Finally they will discuss the contract for sale with you and help you to arrange a date to exchange contracts and complete the sale.
Make sure you're protected - think about life, accident and sickness insurance.
Making an offer
Once you've found the property you want to buy, it's time to put in an offer through the seller's estate agent. Remember, the asking price is how much the seller hopes to get for the property - not necessarily how much they realistically expect - and your first offer can be below the asking price.
Once you've made an offer, it's up to the seller to accept or reject it. Other buyers may be putting offers in at the same time, so it's a good idea to research the price of similar properties, or you may find yourself caught in a bidding war. If the seller rejects your first offer, you can always put in a higher one later.
If your offer is accepted, the estate agent will confirm it in writing. However, this is not legally binding and you could still lose the property if another buyer offers a higher price and the seller agrees to it. This is known as gazumping.
Once your offer has been accepted, you'll need to arrange a property survey, to assess its condition and value. Your mortgage lender will arrange for a basic property valuation to be carried out. You'll have to pay for this. This isn't a survey, just an estimation of the property's value. You might want to arrange for a detailed survey, especially if you're buying an older house.
The basic survey, (Home Buyers Report) only covers the parts of the property that are easily accessible or visible. A full structural survey is more in-depth and can unearth problems that could be costly in the future. If the survey does reveal serious problems, you can withdraw your offer on the property.
Be prepared to budget for more than one survey during your home buying process, in case the first sale falls through. The Royal Institute of Chartered Surveyors or the Incorporated Society of Valuers and Auctioneers will be able to provide you with details of surveyors near you.
If the survey was satisfactory – to you and your lender – you can make a formal offer on the property. Before you do this, it's a good idea to read carefully through the terms of your mortgage, asking for an explanation of anything you don't understand.
Your solicitor should have already agreed the terms of the contract for you and the seller to sign. This contract is legally binding once you sign it, so make sure you're completely happy. On exchange of contracts, you normally need to put down a deposit of 5% to 10% of the house price. The date agreed for the actual sale will be inserted into the contract before exchange.
Once you've signed contracts you must insure the building, as you are now legally obliged to buy it.
Once the contract is signed, you're legally bound to pay for the property on the agreed date. All you have to do now is to arrange to move in.
Make sure you're fully prepared before you move, with your possessions boxed up and clearly labelled. You may want to hire a removal firm to help you.
- Tell your old gas, electric, water and telephone suppliers that you're moving out
- Tell your new utilities suppliers that you've moved in
- Let the council know about your move so you don't pay Council Tax at your old address
- Think about having your mail redirected from your old address
Once you've moved in there are a couple of extra things that you should take care of. After the first month, check that you're paying the right mortgage repayment amounts at the right time. And make sure your important documents are carefully filed away. They're your main record of your purchase and your mortgage and you may need them in the future.
At a glance
Things to think about
How much can I borrow?
Do you have any savings? Will the amount cover a percentage of the deposit plus moving costs, including legal fees? How would you make your mortgage payments if you were sick and unable to work?
What type of mortgage?
Do you know what type of mortgage you want? Can you afford it?
How much will home insurance cost?
Have you got insurance for your new property and possessions?
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