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One of the major parts of any house purchase is arranging the finance for it. (KNOWN AS A MORTGAGE). And this especially rings true for First time buyers.
So what are the important considerations? The most important thing to bear in mind when buying your first home is whether you can really afford it: You don’t want to live in total poverty and not be able to go out because you’ve over extended yourself and can’t afford to spend any money other than on your mortgage, your rates and 30 cans of baked beans.
It’s vital you put together an accurate budget showing all your costs so you know how much you can realistically afford.
WE ARE SERIOUS ABOUT THIS ONE – sit down and write up all your outgoings and incomes. DO IT NOW. Ok now add on an additional mortgage payment, insurance payments, rates payments and electricity payments. Can you truly afford a house?
Mortgage rates are at an all time low at the minute so it is vital that you think about these rates going up. If they do most mortgage payments will rise in line so you have to be sure you can afford this.
When you make a mortgage application the lender will carry out an affordability assessment. In the past this was based largely on income multiples, for example allowing borrowers to borrow three times their annual income. However, this is no longer the case. Lenders now assess what level of mortgage payments you can afford after taking into account your personal expenses as well as your income. Don’t see this as a bad thing, it is good knowing what your outgoings are compared to what your earnings are.
They also look at the impact of future interest rate rises and will restrict how much you can borrow if it looks as if you wouldn’t be able to afford the mortgage if rates went up.
So before you apply for a mortgage it’s a good idea to do your sums and work out what you can truly afford. This could spare you any unnecessary expense as if you apply for a mortgage you may have to pay an upfront fee or a property valuation fee that you won’t get back.
Although affordability calculations vary between lenders they all look at the following expenses after taking into account your income: credit cards; other loans or credit agreements; dependants; maintenance payments.They will also take into account the likely cost of monthly and annual bills such as: Rates; gas and electricity; phone and broadband; insurance – home insurance and life insurance
When you make an application the lender might ask you to fill in a budget planner detailing your income and outgoings. They may ask to see some recent bank statements to back up the figures, so there is no point in trying to conceal something, the lenders will find out.
As a rule of thumb, most mortgage lenders look at about a quarter of your take-home pay (after tax) as an affordable amount to spend on mortgage repayments.
You also need to think about how you would meet your repayments if; interest rates increased; you or your partner lost your job or you couldn’t work due to illness.
We are trying to help you make an informed decision in buying a house. Don’t be pressured into it, don’t rush into it. Make sure it is the right decision for you at the right time of your life.
If you want to speak to someone about anything to do with the process – picking a house, arranging a mortgage, getting the right insurances in place (indeed what the right insurances even are?!), if you want to ask about the legal process or anything else that you can think of, do not hesitate to contact one of the FirstTimeBuyerNI team.