Have you been dreaming of owning your own home, but haven’t yet managed to work out how to do it? Fear not, this brief guide will show you how you can turn your dreams into reality in eleven simple steps. Read on to learn how.
Get a Job
To secure a mortgage, you are going to have to provide proof of income, and for most of us, that means getting a job. This proof is particularly the case if you’re a recent graduate, and you’re holding out for your perfect career opportunity. If owning your home is the primary goal, get a job as soon as possible.
Pay Off Existing Debts
As soon as you’ve got a regular income, your first aim should be to get free and clear of all existing debts, such as credit cards. A mortgage lender will consider your ability to make repayments before lending. If you’ve got too much current debt, you may not get a mortgage offer.
When paying off these debts, do so in the order of highest interest payments first. So, clear the credit cards before anything else.
Develop a Saving Habit
You will need to come up with a deposit for the house of your dreams, and to do that, you are going to have to start saving. On average, first-time buyers will have fifteen percent of the house price as a deposit. That means you will need a £30,000 deposit on a £200,000 home.
Saving that amount of money might seem challenging if you are not used to saving. So, the sooner you start to save, the better.
Of course, you can find homes for under this figure, which will reduce the amount you need as a deposit. You can also look for mortgages that only require a 5% or 10% deposit. These mortgages will cost you more in monthly repayment costs, though.
Whatever level of mortgage you decide upon, the lender will look into your spending habits to gauge your ability to make repayments. Being prudent with your spending will help you twofold: it will save you money and increase your chances of getting a good mortgage deal.
Fall In Love With Your Credit Score
Clearing your debts, and being sensible about what you spend will ultimately help you maintain or improve your credit score. This score makes up part of your credit report, which gives details of any outstanding loans or credit agreements. Such agreements include credit cards, mobile phone payments, and other regular payments. Your score takes into account how much and how often you make payments or not!
When you apply for a mortgage, your lender will use your credit score to help them decide the level of risk you are, and whether or not they will lend to you. You can check your credit score through Equifax or Experian, for free. It would help if you did this before applying for a mortgage, as there may be something detrimental on there that you could quickly fix.
Improving your credit score comes down to making payments on time and in full on any loans or plans you have. You cannot improve your credit score by never borrowing, because there is no proof that you are a responsible borrower. If this is the case for you, take out a credit card, use it for some regular small purchases, and pay off the balance in full every month. This tactic will build up your credit score.
Also, make sure that you are on the electoral register, as not being registered to vote can make getting a mortgage, or any credit, more difficult.
Your monthly rent payments should be taken into consideration for your credit score if you are renting from a private landlord. However, student loan repayments will not register on your score.
Do Your Research
If you want to get your foot on the property ladder, start doing some research about the best location and type of property that matches your budget.
Other things to consider are your place of employment, schools, local amenities, etc. All of these factors will help you decide on your target property and area, which will then give you a price and savings target for a deposit.
Consider Government Help-To-Buy Schemes
The government’s Help-To-Buy scheme is just one of a host of measures designed to get people onto the property ladder. With this particular scheme, you can secure a newly-built home with a deposit of only five percent.
Twenty percent of the purchase price is put up by the government as a five-year interest-free loan. It means you will only need a 75% mortgage, guaranteeing you a lower interest rate. However, it does mean that the government owns 20% of your home until you repay the loan. Still, interest-free borrowing is a great deal. For London properties, the government loan extends to 40% of the property value with the Help-To-Buy scheme.
Another scheme at the local government level is Shared-Ownership. With this scheme, you can buy part of a home (25% to 75% share), and pay the local housing association rent for the percentage you don’t own.
These government initiatives are great opportunities, however, you might not need them. If you can prove that your income is substantial, you will be able to get a 95% mortgage, with a deposit of only 5%. The drawback of such mortgages is that they come with higher interest rates and arrangement fees, which can prove expensive.
First-time buyers in England and Northern Ireland no longer have to pay stamp duty on the first £300,000 for homes costing less than £500,000. The rules for the remainder of the United Kingdom are different.
Check the Bank of Mum & Dad
If you still have your parents, and they have the means, you might be able to get a loan from them. More and more people are turning to their families to help fund house purchases, and it certainly can be a lot cheaper than going to a bank.
Lending you the money is not the only way that parents or family can help. Certain lenders will give you a mortgage with your parents acting as guarantors, with them ultimately being responsible for repayments. This method can also mean that you will be lent more than had you applied without a guarantor.
There are other schemes involving parents too. For instance, one that reduces interest payments, or overall capital requirement, by using savings to offset borrowing.
Try to think outside of the box when you are saving for your deposit, as it can accelerate the rate you save. For instance, some people become property guardians while saving for their deposits.
Property guardians live in empty properties to provide a presence and keep an eye out in the owner’s absence. By doing this, they can significantly reduce the rent they pay on accommodation each month.
Another way to grow your savings is to offer gigs on sites like Fiverr or People Per Hour. This way, you can turn your skills or hobby into cash.
Start Out Small
When it comes to getting a foot on the property ladder, size does not matter. First properties, for anyone, are unlikely to be the property dreams are made of, but they can be the most important purchase as they get you started climbing the ladder.
With this in mind, be prepared to compromise on space, location, and other aspects of the property. View your first property as a means of accumulating equity for later property purchases.
Rent Out A Spare Room
When you finally have your new home, you can make extra cash by renting out a spare room. You are allowed to make up to £7,500 from rent without having to pay tax on it.
If you don’t have a spare bedroom, you might be able to rent out some storage space or driveway for parking. Using your home in this way, you can make up to £1,000 tax-free.
The average age of first-time buyers is thirty-three. If you get your foot on the property ladder before that age, you are doing well, but it is essential to be realistic and not get disappointed if you’re still looking after this age.
Keep in mind these eleven steps to getting a foot on the property ladder, and soon you could be living in the home of your dreams.