Saturday 18 February 2017

A-Z of buying your first home

A simple guide for first-time home buyers to the process of buying a house, including definitions of the technical and financial jargon you will come across when buying a house, securing a mortgage, and becoming a homeowner for the first time.

Buying your first home can be a very exciting, but sometimes an overwhelming experience. When me and my husband were in the process of buying our home, I found I had to learn lots of complicated jargon and technical processes very quickly, so thought it might be helpful to put together a quick A-Z guide to buying a house, including everything first time buyers need to know when in the process of getting the keys to their first place.

Agreement in Principle (AIP)
Before making an offer on a house you will need to secure an agreement or mortgage offer in principle from a bank or lender. This will take into account your salary, monthly outgoings, and any loans you have, to state exactly how much you'll be able to borrow.

An appointment with the bank to get an AIP is often your first point of call, as will give you an idea of your price range when looking for properties.

Arrangement Fee
This will cover the cost of setting up your mortgage loan, and is typically around £1,000, however can be more. So it's a good idea to bear this in mind when getting your deposit together.

Buildings Insurance
Having this type of insurance will be a condition of your mortgage, and will cover any damage that may occur to your property structurally, from disasters such as fire, flooding, theft or subsidence, amongst others. It should cover the full cost of rebuilding your home. You'll need to consider taking out extra buildings insurance should your home be located in a high-risk flooding or subsidence area - information on this will be available in your Structural Survey.

On completion day your money will be transferred to the seller, and all legal documents will be handed over to you, the buyer. Keys will be handed over and you'll be free to move in - congratulations you're officially a homeowner!

Also known as transferring ownership,this takes place after your offer has been accepted, and involves the seller drawing up a contract which contains a number of details about the property, such as the sale price, the property boundaries, which fixtures and fittings will be included in the sale, any planning or legal restrictions associated with the property and land (e.g. public footpaths nearby etc). and when completion will take place. This will usually be carried out by your solicitor, who will also be able to negotiate any details if needed, and will therefore be another fee you'll need to take into account.

This document will state the chain of ownership for the property, and will usually include information on the conveyancing, mortgages, and all the contracts involved in your purchase.

You'll need to get together a deposit to put down as part of the sale, and your mortgage will cover the rest of the cost of the property. The more you can put down the better, as it will obviously reduce your mortgage term and repayments, however schemes like the Help to Buy scheme, are great for those that don't have a large amount of cash to put down.

This refers to how much of the property you own, and can be calculated by working out the difference between the value of the house and the amount of mortgage you still owe.

Equity Loan
The Government's Help to Buy: Equity Loan scheme is a really great way of getting your foot on the property ladder is you're only able to put down a deposit of 5% on the house you want to buy. It works buy the Government loaning you 20% of the property value (for which you'll be charged loan fees for the first five years), meaning you'll only need to secure a 75% mortgage.

A freehold property means that you own both the building and the land outright.

Fixed Term Mortgage
All first-time buyers have to start off their time as a homeowner with a Fixed Term Mortgage, for which your repayments are set at the same monthly rate for an initial period (anything from one to ten years). It's a good idea to 'shop around' for the best first-time buyer interest rates, and we opted for an initial two year fixed term. A FTM might seem like a strange idea should interest rates fall, as you'll still be repaying the same amount, however it can give you some security should they rise - which is why we opted to take out another one after our initial fixed term ended.

Ground rent
If you're buying a home with leasehold status, you'll also need to pay Ground Rent to the freeholder of the property. It can vary, however is usually fairly low and can be payable quarterly or bi-annually. It's a good idea to find out the details surrounding yours as part of the conveyancing process.

Help to Buy 
The Governments Help to Buy Scheme is a great idea should you be struggling to get together the all-important deposit needed to buy a house. there are two strands to the scheme; Shared Ownership and Equity Loan. They also now have an ISA scheme, which unfortunately wasn't available when we were saving for our deposit, however is great in helping you save for that all-important deposit quicker.

In order for your mortgage to be approved, you'll need buildings or home insurance, and you might like to consider taking out life insurance too, which will act to give you some security against your mortgage repayments (more details below).

The Help to Buy: ISA scheme works by boosting your savings by 25%, meaning you can raise the money for a deposit quicker. The bonus is available from the Government on up to £200 a month, and needs to be done through a specific ISA available from a range of banks and building societies.

A-Z of technical terms and jargon when buying your first home


A leasehold property usually refers to a flat or apartment, and will last a term of years. A landlord will own the freehold.

Local Authority Search
You will need to have one of these carried out before exchanging contracts take place. It will cover important things like road maintenance, and any planning applications that might have been submitted on the property. This is the only compulsory search that needs to take place.

Life Insurance
Although this is not a requirement to securing your mortgage, its often a good thing to look into. This insurance will cover your mortgage repayments should you or your partner be unable to pay each month if the worst were to happen. Whether you invest in this added security or not will depend entirely on your personal circumstances, so for example should you be able to make your repayments on just one of your salaries or with your savings, for example, this might prove to be a waste of money.


Minimum Loan to Value 
This relates to the maximum amount you can borrow in relation to the property's value. For example, if your loan is 80%, you will need at least 20% deposit, so for a house worth £250,000, you will need a deposit of at least £50,000 before the lender will agree to the mortgage.

Mortgage Adviser
I would highly recommend hiring a mortgage adviser to help you navigate through the process of buying your first home, as they are definitely worth the money - I don't know what we'd of done without one. They're also great for when your fixed term mortgage is up, and can help you locate the best rates.

Negative Equity
This takes place when the market value of the property is less than the outstanding amount of mortgage left to pay on it. This is usually a result of falling house prices, and could cause a problem should you want to remortgage or sell your house.


Over Payment
Should you, at some point, find yourself able to afford to pay more than your current mortgage repayments, you might like to consider making over payments, which will reduce your debt, and shorten your loan term. Most banks offer this service, and you don't have to commit to paying more every month, you can do it as and when you want to.


Private Treaty
This is the agreement for the sale of a property, at the price negotiated between the seller and buyer.


This is what you will pay monthly to pay off your mortgage loan, for the number of years set by your lender. Your repayments will depend on the price of the property you're buying, how much deposit you can put down, and the interest rate your mortgage is set at.


Stamp Duty
This is a tax every home buyer needs to pay when buying a property worth over £125,000. You'll be required to pay within 30 days of completion. You can work out how much you'll need to pay here. When we bought our home we were lucky enough to be offered a deal where Stamp Duty fees were included in the mortgage offer, so it's worth 'shopping around' to find the best deal.

Whilst it's not essential that you have a survey conducted on the property you're buying, its recommended. There are two levels of survey you have carried out; a home buyers report, which will cost a few hundred, and will look into any problems the house may have such as damp, dry rot and subsidence. You can also have a full structural survey carried out, which will cost more, usually at least £1,000, however will look into all aspects of the building, which is more important if you're buying an older property.

Shared Ownership
The Government's Help to Buy: Shared Ownership scheme is a good idea for those that can't afford the mortgage on 100% of a home, and makes it possible to buy a % of a home, with the Government owning the rest. It's also possible to increase your share later on, should you be able to. You can buy a home through this scheme if you are a first-time buyer, and your household income is less than £80k a year (or £90k a year should you be buying in London).


Transfer Documents
This is the final legally binding document, which will transfer the property to you, the buyer. This takes place during Completion.


Under Offer
Once you've found your dream home, you'll need to make an offer through the estate agent advertising the property (unless you're buying privately, in which case you'll deal with the seller directly).

If this is accepted, the property will now be 'under offer', and will be taken 'off the market', meaning it won't be viewed by anyone else.

Valuation Survey
Carried out by your bank or lender, this is simply to confirm the property is worth the purchase price. You should budget several hundred pounds for this, however this will depend on the price of the house you're buying.

This is an appointment you'll have to look around the property, and its recommended that you do go back and view the house again after you've put your offer in and you are in the process of buying. That way you can double check the structural assets of the house are in the condition you'd expect, and write any changes you'd like making into the contract e.g. fixing leaking guttering etc.

Variable Mortgage
Known as a Standard Variable Rate Mortgage, this is a type of mortgage that, unlike a Fixed Term Rate, can go up and down with interest rates, which will therefore have an affect on your monthly repayments. An advantage to this could be that when interest rates fall, so will your payments, plus arrangement fees for this type of mortgage are often lower than that for Fixed Term or Tracker mortgages. However, there is always the risk that if interest rates rise, you will end up paying more monthly than you were before.


Exchange of Contracts
Once both you, the buyer, and the seller are happy with the contract drawn up during conveyancing, you'll both sign and Exchange of Contracts will take place. This is legally binding, and therefore you won't be able to pull out after this point, without paying compensation.

Hope this has been helpful should you be currently finding your way through the minefield that is becoming a homeowner for the first time! Is there anything I've missed out (particularly anything beginning with J, W, Y or Z?!)

Thanks for reading,
Sam Xx

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A simple guide for first-time buyers to the process of buying a house, including definitions of the technical and financial jargon you will come across when buying a house, securing a mortgage, and becoming a homeowner for the first time.


1 comment

  1. Buying a first home can sometimes become a daunting task. This post on A-Z tips is definitely going to help every first time homebuyer. There are many terms that home buyers are not aware of or have only heard of it but don’t know their meaning in actual. This post is going to be helpful for many. Doing a bit of research before you buy a home can help you a lot. Prepare a plan and decide your budget. Check some realtor websites and look for the best homes. Contact a mortgage broker for loan options and best mortgage rates you can get.


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