This post may contain affiliate links, allowing us to earn a commission on the products we would recommend to our families and closest friends. You can find more info on our Legal Stuff page.
Today we’re excited to share a collaborative post by Danielle, written especially for our UK potential home-buyers.
You know we believe in home-ownership as a smart financial move. Investing in real estate is relatively safe in the long-term, and if nothing else, you get the benefit of living rent-free during retirement. It’s not usually something we think about in our 20’s and 30’s. But this is super important because rent goes up every year, and your income during retirement often doesn’t.
How much would it suck to have to move to a new apartment when you’re 80 because your landlord keeps raising the rent?
So at least strongly consider buying a home. And Danielle will help you get your money ready for a mortgage!
Getting Your Money Ready for a Mortgage
One of my goals for 2018 is to buy a house.
In fact, it’s a goal for a lot of people who want the security of a home of their own. It’s not easy to afford a home (although it’s easier when there are two of you, and you live in the right place!). Your finances need to be in order before you can think about looking at homes and applying for mortgages.
Managing your money isn’t always fun but, as someone with a maths degree, I don’t mind doing it too much. There’s a lot to organize to get homeowner-ready, so here’s what I’m doing to get my finances sorted.
Save a Deposit
This is the big one. Across the UK, the average first-time buyer needs a deposit of nearly £33,000. That’s 16% of the average house price, which is £207,693, according to Halifax.
This obviously varies hugely depending on where you want to buy a home. In London, the average deposit is a whopping £106,577. Where I live in the North East, the average deposit is almost half the national average at £18,594.
It’s important to take this into account when you’re working out how much you’ll need to save. Of course, if you’re lucky enough to have your parents or other relatives helping out, it’s a little easier!
Get a Healthy Credit Score
When it’s time to apply for mortgages, banks are going to scrutinize your finances.
We’ve been making sure our credit scores are healthy, so we’re ready to start applying for mortgages.
It’s easy to check your score for free using a tool like Noddle, and you can work on improving your score by making credit payments on time. If you haven’t got a good credit score, you can visit a site like http://repair.credit/best-credit-repair-companies/, where you can find services that help you repair your credit. There are things you can do to improve your credit, but it does take time, so start early.
Banks are allowed to look at every detail of how you spend your money – which can seem a bit worrying! But don’t worry, they’re unlikely to judge you for ordering enough takeaway for four between two of you last week.
However, they might be wary if you spend a lot of money eating out all the time or you splurge on unnecessary things. They want to know that you will still be able to pay your mortgage if interest rates go up. Showing that you have a sensible budget will get you in their good books.
Work Out Affordability
Make sure you work out what you can afford to spend on your new home. How big is your deposit and what size monthly payments can you meet?
You can use a handy mortgage calculator online to help you work this out. And remember that your mortgage won’t be your only home expense. You need to pay for things like home insurance, maintenance, and repairs.
Hopefully, by the end of the year, I’m going to be in my very first home. Maybe you could be too?
If Danielle’s post has you thinking about getting your money ready for a mortgage, learn more about How to Save for a Down Payment (you can even pick up a down payment savings plan worksheet while you’re there!).