This is a collaborative post: So, you’re thinking about buying a house? It’s an exciting step! But before you dive into the exciting bit of the house-hunting adventure, it makes sense to think about the financial side of things. It’s important to consider a few key factors to make sure you’re well-prepared because this is likely to be the biggest purchase you’ll ever make in your life and you don’t want to end up disappointed if things fall through.
So, here’s a bit of a guide to help you navigate the world of finances when buying a house
(NB This is specifically in the UK, where I’m from – other countries might be very different):
First things first, you need to figure out your budget.
There’s no point looking at houses you can’t afford to buy; it is a waste of everyone’s time!
Take a good look at your current financial situation. How much can you realistically afford to spend on a property? Consider your income, savings, and any outstanding debts you have. Also, keep in mind that buying a house comes with additional costs like legal fees, stamp duty land tax (SDLT), and moving expenses. It’s always a good idea to chat with a mortgage advisor to help you determine a suitable budget and explore your financing options. You can also use a current stamp duty calculator to estimate how much
SDLT you might need to pay.
Speaking of mortgages, they’re the most common way to finance a home purchase because most people don’t have upwards of half a million pounds sitting around doing nothing.
It’s worth doing research to find the right mortgage for you.
Look into different types of mortgages, such as fixed-rate and variable-rate options. Bear in mind the current financial climate, in which interest rates are climbing and predicted to do so even further. Fixed-rate mortgages offer stability with consistent monthly payments, while variable-rate mortgages provide flexibility and are often a bit cheaper, but obviously come with more risk. Before opting for a variable rate mortgage, use a mortgage calculator to see what a rise in interest rates could mean for you. Working with a mortgage advisor can be super helpful in finding the best mortgage for your own financial situation.
Now, let’s talk about affordability.
Lenders will assess your ability to repay a mortgage through affordability checks. Lenders – which might be banks, building societies etc – consider your income, expenses, and existing financial commitments before telling you how much you can borrow in a ‘mortgage in principle’, which most estate agents will want to see before you can even start to view houses.
Lenders will also look at your credit history and employment status so if you don’t have a decent credit score or you’ve just started a new job, these might be something you need to work on before you start looking at buying your own house. Understanding these affordability tests will give you an idea of how much you can borrow and help you plan your finances accordingly.
Saving for a deposit is another important step.
Most lenders require a deposit of at least 5-20% of the property’s purchase price. The larger your deposit, the lower your ‘loan to value’ (LTV) is, and the better mortgage terms you may be able to get, so start saving early! You might also be able to apply for government schemes like the Help to Buy ISA or Lifetime ISA, which offer incentives for first-time buyers.
Remember, there are always additional costs involved in buying a house.
Firstly, you’ll also need to consider Stamp Duty Land Tax (SDLT). This is a tax imposed on property purchases in the UK. The amount you pay depends on the property’s purchase price, but there are some exemptions and higher thresholds for first-time buyers. Make sure to familiarise yourself with the current SDLT rates and any applicable exemptions as you will have to pay it on completion of the purchase.
You’ll need to budget for solicitor fees which can run into several thousand pounds, survey costs, valuation fees, and even removal expenses. By considering these costs upfront, you’ll avoid any surprises along the way.
Don’t forget about ongoing expenses.
As a renter, you just call your landlord to fix things if they go wrong or break, but when you own a house, if the boiler decides to go on the blink then it’s all on you. You’ll also need to budget for things like home insurance, council tax, utility bills, as well as general maintenance costs. Planning for these expenses will help you manage your finances effectively and ensure the long-term affordability of your new home.
I hope this guide has given you a good overview of the financial considerations when buying a house. Remember to seek advice from professionals, such as mortgage advisors and financial experts, to help you make well-informed decisions.
Good luck with your house hunting, and here’s to finding your dream home!