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Most people who do not own their own homes certainly aspire to do so sometime in the future; after many years of living in rented accommodation or with their parents, they may finally decide that the time is right to set out along the path of home ownership only to be confronted by two alarming discoveries. Firstly, they are somewhat embarrassed to discover that they don’t actually know anything about the home buying process or what is involved; secondly, they realise that buying a house is one of the most important decisions that they will ever make and that it will affect their lives for the next 25 years.

Here then, are some of the major points to be aware of when applying for a mortgage; the list and the advice is by no means exhaustive but is illustrative of some of the choices that will have to be made and of many of the expenses that you will be encountered along the way.

What type of Mortgage?

This subject alone could take up many volumes and it cannot properly be covered in this brief introduction; there are however a great many different types of mortgage such as repayment mortgages, interest only mortgages and base rate tracker mortgages to name but a few. Many of these are complex financial instruments and the advice of a qualified Independent Financial Advisor should be sought to pinpoint the right type for you. What can be said is that many of these different types of mortgage, due to their complexity, dependence on the financial markets and blatant mis-selling have caused much misery for many people…except for the traditional repayment mortgage!

The Mortgage Deposit

This is almost certainly going to be the biggest cost in relation to buying your own home. The mortgage deposit is the difference between the cost price of a house and how much you actually borrow (this difference is put down by yourself) and although it is actually possible to get a 100% mortgage, you will be paying a much higher rate of interest if you do get one. In fact, the more you put towards the cost of your house yourself, the better the rate of interest you will receive on your mortgage. The best piece of advice here is to aim to save a 10% deposit before you apply for your mortgage.

Conveyancing (legal costs)

After your mortgage deposit, your legal fees are likely to be your next biggest expense and because of this it is vital that you shop around to get the best price; many solicitors offer low cost, fixed price conveyancing. Take our advice though and note this VERY carefully, as many, many first time buyers have been caught out by this; conveyancing is only one small part of the legal fees that you will be presented with. Your final bill will include charges for Land Registry fees, Search fees, Wire Transfer fees and extras/ incidentals; your final bill will probably be between £1,300 and £2,000…a shock to many homebuyers in the past who were only expecting £200 to £300 for conveyancing!

Valuation fees

Getting your prospective new home valued is compulsory and it is a requirement set out by mortgage lenders for their own protection. Valuations take place so that the lender can be assured that the value of the property is really worth the amount that they are lending out to you. Many mortgage lenders insist that you use their own valuers, some have a list of several preferred companies that you must use, whilst a few will let you select your own valuer. The best advice is to ascertain which of these apply before you take out a mortgage, as part of your general research on mortgage lenders. The cost of the valuation fees will be paid for by you.

The Survey

As you would expect, the survey is carried out to ensure that your potential new home is structurally sound and that there are no major faults. There are two types of survey that you can select from; a basic survey and a full structural survey. The choice of which survey to have is your own, but for the average home a basic survey will usually suffice, whilst our advice for older and more expensive houses is to seriously consider a full structural survey.

Stamp Duty

This is the tax that you pay the Government when you purchase your property. The amount payable is related to the value of the house that you are buying; the latest figures (correct as at March 2008) are as follows:

Residential property - purchase price  Rate of Stamp Duty Land Tax

Up to £125,000  0%

£125,001 - £250,000  1%

£250,001 - £500,000  3%

£500,001 or more  4%

Buildings and contents insurance

These items really need no further explanation except that some mortgage providers attempt to tie you into their own insurers for these insurances; ‘admin fees’ are often payable if you decide not to go with your lender’s insurers and likewise if you decide to switch insurers in the future; as with everything else, do prior research. Whatever the case though, although these insurances are not compulsory and a few people do not take them up, our advice is that it behoves you to have them.

As mentioned previously, this list is by no means exhaustive but certainly covers the main body of expenses that you will encounter when buying your house. We do, however, have one final piece of advice; do not put every last penny into your house buying venture; keep a good amount back for emergencies…they ALWAYS crop up!




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