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Covering the basics to owning your first home
The information in this guide was last updated on 26/02/2014
Becoming a homeowner for the first time can be both exciting and daunting. This quick guide takes you through the home buying process, from finding your first home to securing a mortgage from your lender.
Very few first time buyers will buy a property outright. Most people rely on a mortgage, to help them buy a home, which is a loan secured against a property. Having a mortgage means that:
Your home may be repossessed if you do not keep up repayments on your mortgage, which is why it’s very important to choose a manageable repayment schedule.
When you start looking for a mortgage the choice can be bewildering. The main factors that will influence your choice of mortgage are:
Online mortgage calculators and price comparison sites can be a good way to get a feel for types of mortgages are available, what the current best mortgage rates are, and how much you’re likely to be able to borrow.
It can also be worth contacting an independent mortgage broker. You often won’t pay anything for their service up front – instead, they’ll be paid a fee if you take out a mortgage through them, either by the lender or by you.
Brokers have comprehensive information on the mortgages currently on the market – often including lenders that don’t put their products on price comparison sites.
Our independent First Time Buyers' Guide provides a breakdown of everything you need to know when buying your first home.
Different mortgages come with very different repayment options and interest rates. Below is a section of some common types.
There are three ways you can repay your lender, depending on what they offer and your financial circumstances:
This is the most common option. Your regular repayment is made up of some of the amount borrowed plus interest every month. It means your mortgage will be repaid in full by the end of the term providing all payments are maintained in full and on time.
This means each month you only pay the interest on what you've borrowed, which usually means lower monthly repayments. However, at the end of the agreed ‘mortgage term’ you still owe the whole amount borrowed and you have to find a way to pay that back. You'll need to be paying into another investment to accumulate the money needed to repay the mortgage at the end of the term, such as an endowment policy, ISA, or pension, or have an alternative repayment plan in place, and be confident that you have in place the means to repay the full loan mount at the end of the term. Many lenders now restrict the size of the loan you can have on an interest only mortgage to a certain percentage of the property value (e.g. a maximum loan of 50% of the property value).
This is an option that lets you repay part interest-only and part repayment each month.
It's usually a condition of your mortgage to have insurance to protect your home - often referred to as home insurance, it's usually split into buildings and content insurance:
Now you have your home covered, what about you? You may want to think about how you'd manage to pay your mortgage if you were unable to work because of illness or injury, or how your loved ones would cope if you died.
There are several kinds of insurance that you could look at to safeguard your home and your ability to pay for it:
You can match the cover provided by all these policies to your mortgage to give you the ‘mortgage protection’ you need. It's important you seek financial advice to help you achieve this.
Next: Your options