There are a number of ways of easing the
anguish associated with the house-buying
process. A few simple steps can help you
retain a sense of control and make the
correct decisions. This will help identify
both opportunities and issues, and hopefully
help you in finding the right property.
Drawing up a wish list to find the right
property
If you want to buy an investment house or
make a first-time purchase, note the
principle factors that will influence your
choice:
-
Where do I want to buy? Near work? Near
specific schools or certain school
districts? Close to shopping and other
amenities? In town or the suburbs?
-
What sort of property do I need? How
many bedrooms? Will stairs be a problem
for any member of the family?
-
Will the family grow or reduce in number
in coming years? Is the property
suitable for pets?
-
Is
there a garage? Does it fit all my cars?
Is parking going to be a problem?
-
What much can I afford? What is my
available budget?
-
Is there any equity from the present
property or other capital that can go
towards the purchase price?
-
How long has the property been
available?
-
What sort of
mortgage
is best suited to
my circumstances? Where should I go for
advice?
-
How long am I planning to stay? Will I
be here indefinitely or do I hope to
move up the property ladder?
-
How much work needs to be done?
-
What are the resale prospects in a few
years' time?
Assessing the right property for yourself
Some of these questions
will be easy to answer, while others will be
imponderable, but as you work through them
you will build up a profile of where you
would like to live and where you could
afford to live. All you have to do then is
find the property and arrange finance.
Visiting a stranger's home with a view to
deciding whether to buy can be a difficult
matter. It is all too easy to form instant
judgements based on how the property is
furnished, how friendly the people are, and
whether sunlight is streaming in though the
windows when you visit. Remember, none of
these factors should influence your
decision. When you move in, most or all of
the furnishings will have gone, as will the
previous occupants. Even if the sun is still
shining, it will not shine forever. Your
decision should, therefore, be made by
reference to your list, and by the overall
condition of the property. In other words,
is it what you want, is it in your price
range and is it worth the asking price?
At some point, you will need a professional
survey to satisfy the lender that the
property is a sound proposition, but even
during a casual visit you can get a feel for
the general state of repair: Is there any
sign of damp, such as stained walls or a
musty smell? Has a damp-proof course been
added? Is the structure sound, including the
roof? Are the windows in good repair? Is
their double-glazing? What is the state of
the electrical wiring? Will it need to be
replaced while you are there? How is the
house heated and what are the cooking
facilities? Do they suit your habits and
requirements? Are there any maintenance
charges, and would they be your sole
responsibility? What is the situation
regarding ground rent? Is it a leasehold or
freehold property and are there any other
terms that you should be aware of?
Raising financing for your new property
Arranging a
mortgage
is a major part of the
house-buying process. You will need to know
how much money you can borrow. Your income
and that of any person you are buying with
(with whom the property will be jointly
registered) will determine the size of your
loan. Lenders (banks and building societies)
apply what they call "income multiples", so
you may be told that they will lend you
three times the main salary plus one times
the second.
Determining
Valuations
Remember that the property is security for
the loan, so the lender will not lend more
than the value of the house or condo.
Indeed, they are likely to lend only a
percentage-what they call the Loan to
Valuations (LTV) ratio. A typical LTV might
be 90 percent. If you need 100 percent, you
will probably pay a higher interest rate. If
you borrow more than 80 percent of the value
of the property you may be asked to pay an
insurance premium called Private Mortgage
Insurance (PMI). This can amount to several
thousands of pounds, and protects the lender
against you not being able to honour the
debt. More progressive lenders are no longer
insisting on PMI for loans of up to 80
percent, which is a compelling argument for
shopping around.
Setting a Budget
Whatever you are able to borrow, work out
how much it will cost each month. Ask
yourself if it really is affordable. Would
it be affordable if interest rates went up?
Work out a budget that embraces all your
other financial commitments, both regular
and occasional. If you would find it
difficult every month to pay all your bills,
it is likely that you are in danger of
overstretching yourself. It would probably
be a good idea, in this case, to look for a
more modest property.
Various
Types of mortgages
There is a vast array of
mortgage
products
from which to choose and there are a number
of ways to repay the loan. Again, the
important things are to shop around, take
advice, and read any small print. It is not
possible to overstress just how important
the financial decisions are, so it is vital
that you get them right. Talking to an
independent financial adviser will give you
a good idea of the options open to you.
Mortgage Glossary9
