I know I haven't been posting for several months now. The reason I wasn't much around is very much in the title of today's post. There is quite a lot of things you have to research, before you buy your first house. I know the experience might differ, depending on the country you are planning to make your big investment in. Today I will talk about steps you need to undertake to buy your first house in England based on personal experience.
1. Plan one or two years ahead
- Income Tax
Knowing your budget is very important while buying a house, if you are self employed like me , you probably know how to do your own taxes. If you are not self employed , you do not need to worry about doing your own taxes, it's already done for you, so if your income is high enough you can go ahead and apply for the mortgage. To be able to get a mortgage you need to have at least 1 year of accounts. The percentage you have to pay back on the loan is usually much higher if you have only 1 year of accounts, also you are able to borrow about 4x the amount you earn after tax. In a contrary when you have 2 years of accounts or more they will take in consideration your average income throughout those two years. In this case scenario you will be able to borrow about 4,5x the amount you earn after tax and the percentage on the loan will also be much lower.
e.g If I'm buying a house that is worth £120,000
Let's say I earn £25 000 a year after tax and have only 1 year of accounts
The amount of money I will be able to borrow is £25 000x 4 = £100 000
That means I'll need to save £20 000 for a deposit.
(That is obviously only an example and it will also depends on the mortgage lender and the amount of deposit they will want you to pay.)
The percentage you will need to pay back depends on the mortgage lender , with one year of accounts you will be looking at paying about 3% while with 2 years of accounts or more you will be looking at about 1%. Some people say it's better to wait one more year and get better rates, however you also should remember you can always remortgage after 2 years of paying off your mortgage on higher %. Everything depends on the market and if we consider housing market, prices usually go up rather than down. So if you rather wait two years to get better rates from the mortgage lenders, the house prices might go up noticeably.
-Deposit
If you are buying a house with 1 year of accounts you will be looking at paying about 25% of the deposit on the house, could be less could be more again depending on the mortgage lender. However if you are buying a house with 2 years of accounts you will be looking at paying 10 - 5% deposit.
-Fees
You need to be aware that different mortgage providers will have different fees, some of them will ask you to pay for their work upfront, some of them say you can pay it back monthly and it will be included in your mortgage repayments. Apart from mortgage provider fees you need to consider fees you need to pay to your solicitors. Usually you can get a solicitor for £1000 or under, however they often have hidden fees they don't like to talk about at first you should be aware of. When you are a first time buyer you do not need to worry about paying Stamp Duty, which is great ! One fee less to pay !
2. Look for the property
If you have the financial part sorted , it's time to look for the property. Ideally you will look for a Free hold, no chain property. That means it's vacant and ready to move in as soon as the transaction is through. Detached housed will be the most pricey ones, after that semi-detached and terraced will follow. The prices on these type of properties constantly rise especially in already developed or developing cities. You can use websites like : rightmove.co.uk to view different houses, or you can look at the auction sites like : auctionhouse.co.uk or bondwolfeauctions.com. You should check the market and the value of the house you like, before going for the viewing and making an offer. Make sure to check carefully for any damage in the property that would require fixing, as you can request the seller to fix it for you after your offer has been accepted.
3. After you've found a property
It's worth it to have the mortgage lender sorted, before leaving an offer on the house you like. The seller is more likely to accept your offer, if he knows you have sorted the financial part of the transaction.If you have found a property you like and you were lucky enough for your offer to be accepted by the seller the next step is to find a good solicitor, which might be tricky. Overall the process takes about 3 - 4 months , depending on solicitors. First you can expect your mortgage lender to valuate the house, after the valuation is done he would leave you an offer. Your solicitors will do further searches on the house, which takes about 4-8 weeks. After the searches are done and you have no further queries to the seller, you will sign the contract and the funds will be transferred. After the funds have been successfully transferred to the seller both from you and from your mortgage lender you will be able to get the key to the house and the transfer of the deed will follow shorty after. At that point you own your first house! Congrats ! :)