17 Top Tips and Advice for First Time Buyers in 2020
by Joseph Zammit
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.
Relax. We've got your back.
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:
- Feel confident;
- Save money; and
- Avoid common mistakes;
We'll cover tips for:
- Saving Your Deposit
- Your Mortgage Application
- Mistakes to Avoid
- House Hunting
- 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?
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.
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%.
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.
So it doesn’t cost you anything and they do all the work for you.
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.
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:
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:
- a Decision in Principal (DIP);
- an Agreement in Principal (AIP); or
- 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?
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
9. Right House, Right Neighbourhood
Chances are, this house isn’t for life.
If you’re starting out and you don’t plan to raise a family here then consider what matters to the next buyer.
You don’t want to struggle when it comes to selling your home in the future.
I like to focus on price per square foot.
Is the property you’re looking at priced at higher or lower than the average price per square foot?
All things considered, you want to pay a lower price per square foot than average so you know you’ve gotten a good deal.
There will be little details that add value, but you need to consider if these details are worth paying more for.
When it comes to the neighbourhood itself, there are a few things to consider:
- Transport are there good transport links within walking distance
- Local schools even if you don’t have kids, this will still affect the value of your home
- Amenities how far is the nearest supermarket, what other stores are nearby. Are there lots of hipster spaces opening up – this is a great sign of future value. If you can buy before WholeFoods comes in, then you know you’ll make a nice return when its time to sell.
- Crime statistics how safe is this neighbourhood
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:
Excess = Property Price - (Square Foot x Average Price Per Square Foot)
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
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.
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.
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!
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.
Advice from First-time buyers>
Edward recently bought his first home, along with two brothers. We asked Edward to tell us about his experience. Here’s his advice for first time buyers.
- Get your mortgage lined up first so you know what you can actually get.
- Be as ready as you can before finding the place. Have your mortgage broker and solicitor in place. It sounds strange, but everyone else always seems to be the weakest link).
- Don’t be too quick to think the first property you view is great.
- Don’t assume you can tick off everything on your wish list.
- Nail the utilities etc. asap, don’t put off sorting it out. Have files neatly laid out so they’re not confusing.
- Get up to scratch with possible service charge, ground rent, mortgage payment, council tax etc.
- Watch out for possible increases in any of the above.
- Make sure to note on your calendar when your fixed mortgage period expires so you aren’t caught unaware.
We regret not having a balcony. I’m sure this won’t apply to everyone, but we would have loved our own outside space (especially as we’re all smokers).
Emily decided to buy a shared ownership property. Here’s her advice for first time buyers in her own words.
- Don’t underestimate how long it takes. My purchase was partly delayed by shared ownership stuff so may not be as bad, but I never expected it to take so long.
- Budget for the unknown. There are so many different forms and processes to go through (lots with additional surprise expense).
- Don’t rely on mortgage calculators. As a renter I knew nothing about shared ownership or how much cheaper it is than those mortgage calculators tell you.
- Shared Ownership is brilliant for first-time buyers. Buying a home was a lot more affordable than I thought when I first looked at online mortgage calculators. For years I thought I couldn’t afford to buy and that it would cost more than renting. I didn’t know anything about shared ownership. It was only when I spoke to a broker that I realised how much cheaper it was.
- Get a mortgage broker. I still don’t feel like I know anything about buying a house! The process was so confusing, I can’t emphasise enough how much it helps to have a good mortgage broker on your side.
- Make sure you’ve got your finances sorted: get a mortgage lined up so that you know what your top budget is. If you find the perfect house but it’s above your price range, could you add some money from savings/a loan? Remember the other costs around buying: stamp duty, conveyancing fees, moving costs, mortgage repayment insurance, etc.
- Have a good think about how long you want to live in the property: is it for 2/3 years on your own or are you planning a family? Make sure you do your research about the area accordingly: do you want there to be local pubs, clubs and cafes or schools, pools and parks? Highlighting a map with areas you’d consider moving to and those where you wouldn’t helps, especially when you’re being sent details from estates agents.
- Make sure you physically view the property: don’t rely on a brochure or online specifications. On your first viewing you’re likely to judge with your heart. If you’ve fallen in love with a property, make sure you visit again and consider everything objectively before choosing to put an offer in.
- When making an offer, ask yourself how much would I pay to live here? If it’s what the buyer is asking then you could make an offer below the asking price but don’t be scared to pay the full price. If your offer is accepted, request that they remove the house from the market in order to avoid gazzumping.
- Then it’s up to your solicitors to sort out the legal stuff. Don’t be afraid to chase them if you think it’s taking too long for them to get the exchange sorted: as a first time buyer your situation should be much more simple than other clients.
- Get your keys, move in and enjoy your new property. Don’t feel bad if it takes a few months for it to feel like home: change isn’t always easy!
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.