How do I prepare my financed to buy a house?
Here are 5 major financial preparation tips to note when buying a house:
1. Save for the deposit
The minimum requirement for a deposit is 5% of the property value. The higher the deposit you set aside, the better the deal you get when borrowing money from lenders like banks. Home buying tip number 1 is, save for the deposit. Start now.
One of the best ways, for those under 40, is the Lifetime ISA or LISA account. £4,000 a year and when you buy your first home, the government will add a 25% bonus. This means you have £5,000 (before interest) to use as the deposit.
If you are 40 and above or don’t want to wait for the minimum 12 months that you need to have a LISA, you can use the Help to Buy ISA. You can apply for the government bonus once you have saved £1,600. For full benefit though, even Help to Buy ISA is effective only in the long term.
2. Improve your credit score
Your credit score affects your mortgage. Lenders prefer to lend money to people with a healthy credit score – basically, no outstanding debts on credit cards or other loans. If you take credit frequently, it is worrisome to a lender. They are unsure how you will repay yet another loan.
Bringing your credit score closer to the 999 standard helps you get better rates in housing mortgages. Check your financials. Are you paying only the minimum on the monthly credit card bills? Plan for and pay more than that. Are you making payments late? Clear outstanding dues and make future payments on time. Are you applying for credit frequently? Evaluate if you really need credit and borrow only when needed.
Improve your score before you apply for the mortgage.
3. Work out which mortgage scheme works for you
Once you have the 5% deposit, find out which mortgage scheme to go with.
Choose Help to Buy if you have only a 5% deposit. The government loans 20% of the property price Take a mortgage on the remaining 75%. In London Help to Buy, government loans you 40% of the property price. For first-time home buyers, the government bonus under LISA is helpful.
For those under 30 and willing to buy a new build, Starter Homes schemes give you a 20% discount on the property price. You only need a mortgage for the remaining 80% minus the deposit. But you cannot sell the property for 15 years after purchase.
Decide which scheme works best for you and apply.
4. Apprise yourself about other costs
Aside from deposit and mortgage, there are other costs associated with home buying in the UK. There is a stamp duty land tax (SDLT) although first-time homebuyers get relief for properties valued up to £300,000.
For others, and for properties valued above £500,000, tax relief is up to the first £125,000. Apart from duty, there will be lender fees, surveyor fees, and legal fees when you hire a conveyancer. Moving and decorating costs are separate.
Feeling overwhelmed by the costs? We still haven’t factored in negotiations at each level. There is, however, a way to simplify the process.
5. Look for an estate agent
This is a good home-buying tip for anyone. You seldom have time for the details of the home buying process. The benefits of hiring a real estate agent are tangible.
You save time. You have a single point of contact for all your inquiries. You save a lot of money by not running from pillar to post for all the paperwork. A real estate agent advises on the best finance scheme for your house buying. Estate agents help bring down the total cost of ownership since they can provide surveyor and legal services as part of their service package.
Buying a house, especially for the first time, is a major event. There are ways to make the process easy by being financially prepared and getting help from experts.