Getting your first property is tough these days because you need a big deposit, which many people struggle to save. If most of your money goes on rent and bills each month, it can take a long time to save the money that you need to buy a house. Unfortunately, the difficulties don’t end when you finally save that deposit because you then need to find a mortgage, and that’s harder than you might think. So many first-time buyers don’t know where to start when finding a mortgage and they make some common mistakes that cost them for years to come. You’re putting a lot of money into your home and you will be paying the mortgage for a long time, so it’s vital that you find the right deal. These are some of the biggest mistakes that first-time buyers make when finding a mortgage.
Taking The First Deal That You Are Offered
When you finally have your deposit and it’s time to start looking for a mortgage, you should go to your bank and see what they will offer. But it’s a big mistake to take the first deal that you are offered because you need to shop around if you want to find the best mortgage rates. There are a lot of different lenders out there, and you need to make sure that you explore all of your options before you decide on anything. The easiest way to find the best mortgage rates is to use a mortgage broker, like Altrua Financial, who will compare a range of different deals for you to find the best mortgage rates. If you just take the first deal that you are offered, you will end up paying a lot more interest than you need to.
Not Reading The Fine Print
Nobody likes reading the fine print, it’s boring and it takes ages. But when you are borrowing a huge amount of money, it’s vital that you read the agreement in full before you sign, so you don’t get any nasty surprises further down the line. In many cases, lenders will offer an attractive interest rate to start with but it could change in a few years, meaning that your monthly payments will increase a lot. Your mortgage broker can help here as well. They can find the best mortgage rates, they will also take you through all of the fine print and negotiate a better deal for you.
Making Yourself House Poor
House poor is a term that you need to be familiar with when you are looking for a mortgage deal. Being house poor means that the majority of your monthly income goes towards your mortgage and running costs, leaving next to nothing for any other expenses. This puts you in a difficult financial position because you are unable to save any money and if your car breaks down or your boiler stops working, you have no money to cover those unexpected expenses, so you have to rely on borrowing. The reason that a lot of people become house poor is that they borrow the maximum amount that they are offered by a lender and they don’t budget for any of the other costs associated with buying a house.
When you first buy a house, you will need to spend some money on renovations and decorating. You can save a bit of money by doing renovations yourself, but there may be some jobs that need to be handled by a professional. You also need to account for all of the administrative costs and fees associated with buying a house. When you are calculating how much you can afford, make sure that you have enough money to pay your mortgage and all of your bills, and still have enough left to save a bit each month so you can be prepared for unexpected expenses that are sure to come. As a general rule, you should not be spending any more than 28% of your monthly income on the mortgage or you will find that you have no money left over to enjoy.
Ignoring The Cost Of Owning A Home
There are a lot of benefits to owning a home over renting, but when you buy your own home, you do have to take on the cost of home ownership. Many first-time buyers ignore this cost and find that they struggle to meet their financial obligations every month. Property taxes are a big expense, so make sure to check the system in your area and work out exactly how much you are going to have to pay. General maintenance is more expensive than you think as well, and most people spend around 1% of the total value of the home each year on small jobs. In some years, you might spend less than this but other years you will have to pay for expensive repairs like fixing a roof or replacing a boiler. Maintenance costs are not as bad with a brand new house, but if you are buying an older property, you will spend more. Consider the size of the house as well because a larger house has more potential for problems. When you are calculating how much you can afford to spend, make sure that you factor in all of the costs associated with owning a home and add them to the monthly mortgage payments.
Putting Down A Small Deposit
Saving a deposit is hard and if you are excited about getting on the property ladder, you may think that putting a small deposit down is best. There are mortgages available with a 5% deposit but if you go for that option, you will have to pay mortgage insurance. This insurance is in place to protect the lender if you are unable to pay the mortgage, and you will be required to pay if you put down less than 20% as a deposit. This can increase the monthly payments on your mortgage by quite a bit, and you likely will not get the best interest rates. Even though it is tempting to get on the property ladder as quickly as possible, it is usually best to wait a while and save up a larger deposit because you will get a better mortgage deal and save yourself a lot of money in the long term.
Not Fixing Your Credit Score
Interest rates will also be affected by your credit score, and if you have a bad credit score, you will pay higher interest on your mortgage. If you want to get the best mortgage rates, it is vital that you check your credit score and take steps to fix it if it isn’t very good. Before you even start looking for a mortgage, make sure that you have paid off all of your credit card debts and you are meeting all of your financial obligations on time every month. If your financial history isn’t great, it can take a long while to build your credit score up again, so don’t rush into buying a house until you are in a stable financial position. It’s important to remember that being refused a mortgage could negatively affect your score, so if you keep applying and getting turned down, you will get stuck in a vicious cycle.
This is a collaborative post written by one of our blog partners.
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