First-time Buyer Mortgages 17 Top Tips and Advice for First Time Buyers in 2020

17 Top Tips and Advice for First Time Buyers in 2020

by Joseph Zammit

Last Updated: July 15th, 2020

So you've made the decision to buy your first home…

Here’s the deal:

You might be feeling a little nervous right about now.

You might be worried about not being able to get a mortgage.

You might be worried about not being able to borrow enough…

...Or you’re worried because you have no idea what you're doing.

Now:

We’re going to share with you, our top tips for first-time buyers.

These top tips will help you know what to expect…

… And how to handle every step of the journey to owning your first home.

We'll keep updating the guide as we learn new tricks and others share their favourite tips.

By the time you’ve finished reading, we want you to:

1. Feel confident;
2. Save money; and
3. Avoid common mistakes;

We'll cover tips for:

1. Saving Your Deposit
2. Your Mortgage Application
3. Mistakes to Avoid
4. House Hunting
5. First-time buyers share their tips

Without further ado, let’s get started:

• 1. Start saving for a deposit early
• 2. Take a look at mortgage options and how much you could borrow
• 3. Research Help to Buy and Shared Ownership
• 4. Check how much can you afford to spend on your new home
• 5. Check your credit score
• 6. Pay off any higher interest loans
• 7. Compare mortgage rates
• 8. Get a mortgage in principal
• 9. Right House, Right Neighbourhood
• 10. Stick to your budget
• 11. The Shallow Hause effect
• 12. Not budgeting for other costs
• 13. Not saving enough for after move-in expenses
• 14. Buying for right now
• 15. Being afraid to negotiate
• 16. Not knowing the limits of a surveyor
• 17. Not buying adequate home insurance
• BONUS TIP: 18. Get the government to pay some of your deposit
• BONUS: Advice from First-time buyers

Mortgage Deposit Tips

1. Start saving for a deposit early

Why you might ask?

It’s simple:

More money = less problems.

The more money you can put towards your mortgage, the easier it’s going to make it for you to get one.

You’ll also need spare cash for other costs.

So:

Expect to put down 20%

Some lenders will let you put down less.

First-time buyers can find lenders willing to go as low as 5%.

In fact:

Lloyds recently launched zero deposit mortgages for first-time buyers.🤯

But, the less you put down, the higher your monthly payments will be. And even a small deposit of 5% on a £200,000 property is £10,000.

So start saving early…

... And don’t be in such a rush to buy that you feel the need to use a smaller deposit.

I’d recommend setting a goal for the amount you’d like to spend on your first property.

What’s 20% of the value of that property?

Write that figure down and start saving towards it.

When I decided what that amount was, I wrote it on my bedroom window in bright red ink (washable of course).

I set my mind to save that amount.

If it helps, you can use an app to track your progress or set up a pot that saves money away for you.

And if you found this tip helpful, be sure to check out the bonus tip #18 I just added as part of a recent update. I'm sharing how to get the government to contribute to your deposit!

Paying a higher deposit will give you a lower monthly mortgage payment.

2. Take a look at mortgage options and how much you could borrow

Here’s the thing:

You need to be realistic about what you can borrow.

You can get a ballpark figure by playing around with a mortgage calculator.

A calculator will show you your monthly payments based on your deposit amount and property price.

There are a looooooot of options when it comes to mortgages and each mortgage type has its own pros and cons.

You’ll save yourself time and effort by speaking to a mortgage broker upfront.

No, I’m not telling you to spend more money. The process is expensive enough as it is.

Luckily for you, there are lots of free online mortgage brokers now.

Rather than you going from lender to lender to lender to lender.

Instead, a mortgage broker can search the whole market. They’ll search every lender for you. And they’ll get it done much faster.

They can also take a deeper look at your finances to provide the most suitable options.

3. Research Help to Buy and Shared Ownership

If you’re struggling to save enough deposit and want to get onto the property ladder. Take a look at Help to Buy and Shared Ownership programs.

Help to Buy lets you borrow 20% interest-free, for the first five years as long as you have at least a 5% deposit.

Shared Ownership gives first-time buyers the opportunity to buy a share in a new build.

These are great options if you want to get on the property ladder, but don’t earn enough to buy the property you want and are often overlooked.

Help to Buy is almost a no-brainer if you’re eligible.

Mortgage Application Tips

4. Check how much can you afford to spend on your new home

Before you start looking for your dream home, you need to know what’s actually in your price range.

You might be thinking “wait, didn’t you already mention this”. Not quite.

Number 2 told you to check how much you could borrow.

But…

There is a difference between what you could borrow and what you can afford to borrow.

Ultimately lenders will base their lending decision on affordability.

This means that the figure you see on a mortgage calculator is usually the upper limit of what you could borrow. The actual amount lenders will lend to you may be lower. They’ll want to see that you're sensible with money. Are you comfortably saving money each month?

Spending less than you earn is always a good sign.

Living beyond your means, however, could put you at risk of not being approved.

A mortgage calculator like this one will tell you the upper limit. You’ll need to chat to a mortgage broker to find out the exact amount and rates you’re eligible for.

5. Check your credit score

Borrowers can be so scared of their credit score that they don’t even dare to find out what it is.

Never be afraid to take a look.

When applying for a mortgage, lenders will review your credit score to decide whether to lend to you.

A good credit score will make lower interest rates available to you.

Good credit makes it more likely that your mortgage application gets approved.

So check your credit score before you begin the buying process. Check for errors that could be dragging down your score. If you find errors, dispute them.

Look for opportunities to improve your score. A great way to do this might be to report your rent payments to the credit agencies.

Remember to pay down any debts you have and avoid taking out any new loans or applying for any new credit cards until your purchase is complete. This will prevent your score from dropping during the application process.

6. Pay off any higher interest loans

Start thinking like a Lannister.

If you have any high-interest loans…

PAY THEM OFF!

You’re better off using the deposit you’ve saved to get out of debt before you take out a mortgage.

Remember, a Lannister always pays their debts.

7. Compare mortgage rates

The number of people I’ve come across that get a rate from only one lender is insane!

And it’s not always first time buyers, people with several homes and BTL landlords are as guilty....

What are you thinking?

This is the single largest amount of debt you’ll take on in your life (with the exception of Americans taking student loans).

But you jump into bed with the first lender you can think of…

Do you do that with dating?

No, so why the hell would you do that with your mortgage?

It’s easy to compare mortgage rates and can save you thousands of pounds per year.

You can use a mortgage comparison tool or get a mortgage broker to do it for you.

There are some fantastic free online mortgage brokers now. They’ll search 90+ lenders in one go before advising you on the best deal available to you. Ask them for at least three quotes and compare both rates and fees.

If you want to dive deeper into the topic you can see how to compare mortgages in my other article here:

Mortgage Comparison: How to Compare Mortgages

8. Get a mortgage in principal

What the hell is a mortgage in principal I hear you say...

You may have heard people refer to this as either:

1. a Decision in Principal (DIP);
2. an Agreement in Principal (AIP); or
3. a Mortgage in Principal (MIP).

What it does is pre-qualify you for a mortgage with a specific lender.

This gives you an estimate of how much that lender may be willing to let you borrow based on your income and debts.

You might be wandering:

What’s the point in that?

Well...

This is great because they’ll examine your finances and confirm how much they’re willing to lend.

So when the time comes - you can make an offer on a property and be confident that your mortgage application will get approved.

It gets better:

It’s smart to get a mortgage in principal as you get closer to making an offer on a property.

It shows estate agents and sellers that you’re serious when making an offer.

It can give you an upper hand over buyers that haven’t gone this far.

Sellers might prefer to take a lower offer from someone who they’re confident will complete. As opposed to someone offering the asking price, but whom they’re not sure can complete.

House Hunting Tips

10. Stick to your budget

Look at properties that cost the same or less than the amount you could borrow.

Don’t start looking at properties over budget.

Thinking that you can negotiate on price to get it down to your budget is a bad idea. You want to spend less than your max borrowing amount.

Although you can afford to spend the lot, you need to budget for the unknown.

Finding your washing machine breaks down within one month of moving in would suck.

Not having any savings left to pay for a new one would suck even more.

Don’t get into a bidding war.

If you find a home you love and someone else has already made an offer, you’ll want to offer more than your budget.

Don’t do it.

You need to remain logical. Don’t let emotions take over or you’ll end up overpaying.

First-time buyer mistakes to avoid

With so much to think about, it’s unsurprising that some first-time buyers make mistakes.

Here are a few of the most common pitfalls, along with tips to help you avoid them.

11. The Shallow Hal Hause effect

Its very easy for first time buyers to get distracted by aesthetics.

If it looks shiny, doesn’t mean its gold.

Consider whether you’re paying too much for a property because its renovated.

This comes down to price per square foot.

Do this calculation:

How much are you paying above average for that new kitchen, or the nice furniture?

Are you paying more than what it would cost to fit a new kitchen yourself?

Be logical when it comes to buying the property. Falling in love with a property because of the way it looks can lead to you overpaying.

Remember, beauty fades, personality is forever.

12. Not budgeting for other costs

On top of your deposit, there are other costs you’ll need to save for before you can buy your first home.

These costs can fall anywhere between 2% and 5% of your loan amount.

Not so insignificant right?

These can include:

• Stamp Duty
• Home Insurance
• Conveyancing

First-time buyers are in luck:

First-time buyers in England or Northern Ireland pay no Stamp Duty on properties worth up to £300,000.

This saves you up to £5,000.

You can also save money on insurance and conveyancing by shopping around. You can get quotes from several conveyancers here. Check out some deals on home insurance here.

13. Not saving enough for after move-in expenses

You've saved for your deposit and budgeted for extra costs.

You should also set aside a buffer to pay for what will go inside the house.

Furniture, appliances, carpet, fixtures and fittings, new paint and any improvements you may want to make after moving in.

14. Buying for right now

I know, I’m completely contradicting what I said in point 8.

Here’s the thing:

If you have plans to get married or have kids then its better to take this into consideration now.

Buying a house is a hassle and its expensive. You don’t want to incur buying costs more than once in a short period of time.

If you plan to start or grow your family, it may be preferable to buy a bigger home now and grow into it.

Think about your future wants and needs and whether the home you’re considering works for them.

15. Being afraid to negotiate

Don’t be afraid to negotiate.

Brits tend to be especially terrible at haggling.

It costs you nothing to negotiate and could save you a tonne of cash.

A good friend of mine recently saved £50,000 on his home. The house was on offer at £525,000 and he went in with an offer of £475,000. The seller tried to counter for £500,000, but my friend stuck to his offer and walked away. A week later the agent called him back and asked if he was still prepared to offer £475,000.

It helped that my friend was willing to walk away.

You may not be, but the sellers first counter still met him in the middle with a saving of £25,000.

Estate Agents expect buyers to make offers below the asking price. They factor this into the price they put the house on the market for.

It never hurts to make an offer below the asking price, especially in a buyer’s market.

16. Not knowing the limits of a surveyor

When your offer is accepted, you’ll pay for a surveyor.

They'll examine the property’s condition inside and out, but the results will only tell you so much.

• Not all inspections test for things like radon, mold or pests, so be sure you know what's included.
• Make sure the inspector can access every part of the home, such as the roof and any crawl spaces.
• Attend the inspection and pay close attention.
• Don’t be afraid to ask your inspector to take a look — or a closer look — at something. And ask questions. No inspector will answer the question, “Should I buy this house?” so you’ll have to make this decision after reviewing the reports and seeing what the seller is willing to fix.

17. Not buying adequate home insurance

If you’re buying a freehold property, the lender will need you to get home buildings insurance.

Shop around and compare insurance rates to find the best price.

Pay attention to what’s covered in the policies.

Going with a cheaper policy usually means fewer protections and more out-of-pocket expenses.

Flood damage isn’t covered by home insurance. If your new home is in a flood-prone area, you may need to buy separate flood insurance.

BONUS TIPS

18. Get the government to pay some of your deposit

Yes, you read that right!

You can get the government to help you save towards a deposit for your first home with a Lifetime ISA (LISA).

A Lifetime ISA lets you save up to £4,000 a year towards your first home (or retirement), and gives you a cash bonus of up to £1,000 a year on top.

That's £1,000 per year, FREE from the government!

PLUS:

You earn interest on whatever you save. And it's an ISA, so that's tax-free interest.

So... If you're saving for a home I'd say that's a real no-brainer. Even if you don't need the money, it makes sense to open up a Lifetime ISA.

Now I'd like to hear from you

What are your top tips for first time buyers?

Is it the Shallow Hause Effect?

Or is it Not Being Afraid to Negotiate?

Share your favourite tips for first time buyers below.