It's brown trousers time! (How to buy a house)

Member Name: michaird

Product:	How to buy a house
Date:	29/10/02 (278 review reads)
Rating:

Advantages: Nice new house, Maybe even a garden, Uk Style becomes interesting

Disadvantages: Very stressful, Debt up to eyeballs, Uk Style becomes interesting

Buying a house is one of the most important, scary things you'll ever do. Believe me, unless you're an Osama Bin laden look alike in the USA it's unlikely you'll ever do anything more bowel weakening than sign you life away to years of debt in numbers you couldn't even count to until you were ten.

It doesn't help that even thought there's bucketfuls of advice around none of it makes any real sense until you've actually lost your property purchasing virginity. So with only three days to go until I pack up my PC and move into my lovely new house I've decided to put together the ultimate how to guide for first time buyers.

However, I may get bored after a while so it may not be that comprehensive, we'll see how I get on.

The first thing to do after you've decided that it might be a good idea to own your very own little pile of brick is to figure how much money you can afford. This is quite different to how much money you can borrow. My best tip is to take your combined salary and times it by 2.5 (3 times for a single salary) this is a rough estimate of the amount of money a bank will lend you. Then take that amount of money and run it through a mortgage calculator (found all over the web) at a rate a couple of percent higher than the current average rate. This will give you a monthly figure of what the mortgage payments will be at that rate. Take that figure, deduct any rent you pay out now and put the rest into a savings account, religiously. If you don't currently pay bills like council tax, gas, electric etc add a monthly amount to cover these. If find yourself struggling then you cant afford to borrow that much money. Keep adjusting the amount you'd like to borrow until you have found a level at which you can comfortably save at without struggling.

One of the plus sides to using this affordability test is that while you are doing it you are also saving. Indeed the second thing
to do after you have decided to take the plunge is save. Save like your life depends on it! The level of deposit you save is really up to you and how much risk you are prepared to bear. The best level for a first time buyer is 10% of the purchase price however 5% is much more common. 100% mortgages are a lot easier to come by nowadays but are higher risk for you and the bank so tend to attract higher rates of interest. Regardless of the amount of deposit you save you will need a good chunk of cash to pay for the actual purchase. Typical costs involved in purchasing a property are:
Solicitor's fees, valuation fees, survey fees, moving costs, arrangement fees and stamp duty. The actual cost of these will depend on where you are buying, the type of house you buy and how much you're paying, therefore costs will vary far to much for me to give you any figures. I would estimate though that the absolute minimum you will need to pay for all the costs is about one thousand pounds.

I would like to say a little about stamp duty. Stamp duty is a tax that is paid on the purchase of a property over 60K. The current rate is 1% between 60K-125K, the rates increase as at higher price level but if you shelling out anymore than 125K I'm sure you can find out for yourself what you have to pay. Anyway, back in November 2001 the government designated a number of areas around the country that, for one reason or another, are exempt from stamp duty up to purchase prices of £125K. To find out if your prospective property is likely to be exempt you'll need the postcode and this URL: http://www.inlandrevenue.gov.uk/so/pcode_search.ht m
It is supposed to apply to disadvantaged areas but my new house was exempt and my area isn't very disadvantaged so don't take too much notice. I wouldn't let it affect your decision too much but if you're short on cash it's an outlay you don't need.

The next thing you need to do is find a mortgage
. It's best to do this before you go looking for a property as it gives you peace of mind that you will be able to get a mortgage before you set your heart on your new castle and it also puts you in a strong bargaining position when putting in an offer. I would strongly recommend getting independent financial advice (we used the Bradford and Bingley) when choosing your lender, as the cheapest deal is not always the best. When getting a mortgage, things to think about include: interest rate, redemption penalties, tie in periods, repayment basis and flexibility. An independent financial advisor should be able to make all you options clear to you. The only thing I would say on this matter is unless you are willing to take a risk with being able to pay off your mortgage go for repayment basis. If an advisor tries to push you into an endowment, ISA or pension mortgage dump him and go somewhere else (of course, if that's what you really want, have it).

Here we should introduce you to the mortgage indemnity premium. Now personally I think this sucks ass. Basically a lender is willing to take a certain level of risk on a mortgage. It varies from lender to lender but some will go to 70% of the purchase price others 90% and so on. For any amount they lend above that level they will want to insure themselves against not being able to get their money back, they do this with a mortgage indemnity. The indemnity means that if you cant pay your mortgage and they come and take away your house the bank will be able to get that high risk slice of the mortgage back. However, here's the sucky thing, the insuring company can still come after you for the money. The really, really sucky thing is a lot of lenders will make you pay for the indemnity! Usually the premium is added onto the mortgage and paid for over the term of the loan. There's not a lot you can do about it but it's worth knowing because it's just so incredibly sucky.

Right, when you
've got your mortgage and your savings you can go and look for a house! When looking at houses you need to be organised, this is a huge investment and although you may fall in love with a property you have to be practical. Yes, practical. Does it need much work? Can you get to work easily? What are the buses like from the pub? How good is the local chippy? Very, very important questions! Don't be afraid to have a good poke about when in the house too, skirting boards and plaster etc should be inspected. Its best to go with someone when doing this, as you also need to keep on the good side of the vendor, use a partner to distract them while you pick at their house. Ask to go to the toilet so you can check the plumbing and the water. There's nothing worse than moving into a new house only to find that the toilet doesn't flush and the tea tastes manky.

When you've found your dream home you need to ring the estate agent and put in an offer, be cheeky but not too cheeky when you do this, an offer too low can risk insulting the vendor and an offer to high can cost you money. Fix a maximum price you are willing to pay and do not go above it. If the vendor tries to play you off against another buyer when bidding drop the whole thing, you don't want to be taking such an important step with someone you can't trust.

After you've had your offer accepted you will need to get a solicitor. The best way to find one is through recommendation from someone you know and trust. If you have no friends then make sure you get plenty of quotes and don't just go for the cheapest one. Remember, it's not worth having a crap solicitor just to save a couple of hundred quid. Really, buying a house is stressful enough as it is.

You then need to get in touch with your mortgage people an let them know you've found somewhere, if you used a financial advisor then you should contact them instead. This is where you pay out your fir
st lump of money, the mortgage company will arrange for a valuation. This is a simple survey carried out on behalf of the bank so that they can decide if they are willing to take the risk of lending on your new house. Basically they survey will indicate whether or not the price you are paying is right for the property. The survey will also give you a rebuild cost of the house (you will need this later on for insurance). You will also get a copy of the valuation.

You may decide to undertake additional surveys for your own use. The main types are the homebuyers report and a structural survey. Whether you need one of these or not, and which type you have, depends on the age, condition and location of the house. Don't let yourself be pushed into paying for surveys you don't need either. It is unlikely that a 30 year old house in an area with low risk of flooding and subsistence is going to need a full structural report. Be careful some people will try to take advantage of you and have you shell out money that you don't need to because they assume all first time buyers are naive.

When your surveys are complete and everyone's happy you should receive your official mortgage offer. You will need to pass this onto your solicitor to deal with, although they may get a copy automatically.

Meanwhile your solicitor should have sent you a copy of the property detail, which includes the information on what the seller is and isn't leaving behind and information regarding the property (boundaries, neighbour disputes etc) for you to approve. This will form part of the purchase contract so make sure it is correct. Also, they will have put in place various searches that need to be undertaken. These will highlight things like planning applications likely to affect you (e.g. new roads) and where the water pipes lie etc.

You should also be sorting out your insurances at this point. Insurance is a pretty complicated and boring area
so all I'll say about it is get independent advice and don't be pushed into insurance you don't really need or cant afford. However, make sure that you have good buildings and contents and that you are well protected.

So, when the mortgage offer is in, the searches are back and everybody's happy your solicitor will ask you to go into the office to sign the contracts.

At your solicitors meeting they will go through all the details of the purchase, all the searches, your mortgage and will raise any points they think you ought to be aware of. You may find yourself feeling as if you have to justify why you chose your house but don't worry, everyone I know feels like this, the solicitor is just doing his or her job. When they are satisfied you understand and are happy with everything they will get you to sign the contract, plus a few other things (e.g. mortgage offer).

Then you will decide on a date for exchanging the contracts, this is the real point of no return. Once contracts are exchanged you are tied into the purchase and all sorts of bad things will happen if you don't go through with it. Your solicitor will explain everything in detail at the time.

After exchange is completion, completion is exactly what its sounds like, its when its all done and dusted and you finally get the keys to your new house and you can move in, which is another op altogether.

Phew, god!

Right, I'm done.

You can go now.

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