Buying a house can be one of the most stressful and expensive things you will ever do. Whether you have been through the process before or are a first-time buyer, it can be extremely complex and take weeks and months of planning and saving. There are many different aspects that have to be considered even before viewing and making an offer on a property you really want.
Here at QuidMarket, whilst we provide unsecured loans and not mortgages, we understand that buying a home can have a huge strain on your finances, especially your savings. As we may be able to help provide people with short term loans to cover essential expenses when required, there can be many unexpected things that can happen during the time you are saving up a deposit and waiting for a mortgage purchase to go through.
To help, we’ve put together a short guide on the main things to consider when looking to borrow money to buy a house. Whether you are buying for yourself or are considering helping with buying a house for a family member to live in, there are various essential things to know. Here you will find out how to get a loan to buy a house, where to get a loan for a house, and how to help a family with their house buying too.
How to Buy a House with a Mortgage – The Basic Process
Firstly, borrowing money to buy a house is a different process from any other type of loan. With a mortgage, most lenders will require you to pay a deposit towards the property purchase as it is a secured loan. This amount can vary depending on the lender and the value of the property. This is unlike a personal loan or similar which does not require this type of security.
Most lenders will look at a loan to value (LTV) ratio and in most cases will not be able to provide 100% LTV (where they lend you the full amount of the house value). Commonly, the LTV will be no more than 95%, with most mortgages being offered between 80% to 90% LTV. This means the amount of deposit needed is high for most borrowers. This is why you would need to know exactly what your budget is and how much you have in savings to put towards a mortgage. The higher the value of the property, the higher the value of the deposit as you would need to pay upfront 10% to 20% of the house value to secure the mortgage. Here are some basics to consider:
- How much can you afford? – It can be very easy to start looking at your dream home without knowing what your budget is. You should assess your affordability and how much money in savings you currently have. You’ll need to decide how much per month you can afford towards mortgage payments and how much deposit you can pay upfront. If buying a house with parents’ money in the UK as part of a gift deposit, you’ll need to determine how much this will be too.
- Where are you going to live? – it’s a big decision to purchase a property so you will need to research where exactly you want to live and what type of property you’ll need. How many bedrooms? Do you want a house or an apartment? Would you prefer to have a garden? City centre or countryside location? These will all determine the property value along with where in the country it is.
- Start viewing properties – once you have the basic needs covered and you know your budget, you should start viewing properties to get an idea of the size and the local area. Is it close to local amenities and public transport? How close are the nearest schools? The best way to know if the property you have in mind is the right size is to view it before considering making an offer on it.
How to Mortgage a House
Getting a mortgage in principle is an important step, as this will determine if a lender is prepared to provide the mortgage amount you are looking for based on your current income, the amount of deposit you have, and the value of the property. Most lenders will have set criteria of a maximum they would lend based on your income, usually 3 to 5 times your annual salary. This is why most people will look to buy a property with a partner or family member as it can be very expensive and difficult alone. This is where many parents may look at giving their child money to buy a house if they can afford to.
- Get a Decision in Principle (DiP) Before Making an Offer – you should ensure you have an agreement in principle with a lender before deciding to make an offer on a property. Most sellers and their solicitors will not agree to the sale of a house unless you have this as a minimum or already have a mortgage agreed. You’ll need to research which lenders you want to approach for a DiP and potentially also speak to a mortgage advisor for help.
- Make an offer – once you have a decision in principle and have found the property you want to buy, you can make an offer and see if the seller will agree. You may need to negotiate as some properties will be advertised differently, such as ‘offers in excess of asking price’ or ‘offer in the region of’. You’ll need to determine what you can afford to offer based on the DiP and your deposit amount.
- Complete a Mortgage Application – once your offer has been agreed by the seller, you’ll need to complete your mortgage application with the lender who has provided a DiP. You can choose to go with another lender, but most people will continue with the same one. Remember, the DiP is not a guarantee you will be approved as this cannot be done until full credit and affordability checks are complete. You can either complete an application online or book in to speak to a mortgage advisor to help. Once approved, they will help you choose the mortgage products that best suit your needs.
- Instruct a Solicitor – buying a home is complicated from a legal perspective, so you will need to find a solicitor that can help you. This includes doing all of the necessary paperwork and communicating with the seller’s solicitor. You will be able to arrange for a survey of the property too so that can check for any issues or defects structurally. You’ll need to consider that this is all additional costs on top of the mortgage, and you will have to pay Stamp Duty Tax if you are not a first-time buyer.
Can You Use a Loan for a House Deposit?
Generally, taking out a loan to cover a deposit is not recommended, even if it will save you time on saving for a deposit. This is because having further borrowing may affect a decision to get a mortgage, as you will have to repay this monthly as well as the mortgage payments. This is one of the reasons why some parents help with buying a house for a family member to live in, as it can quicken the process of saving over many months or even years.
Buying a house with your child or relative will differ depending on the situation. If you are just planning to gift money towards the deposit, the mortgage lender and the seller’s solicitors will need to have proof of where this is coming from. This is for money laundering checks to ensure the funds are legitimate. You will also need to consider whether inheritance tax will affect the gift, as if a parent dies within 7 years of gifting the money, their child may be liable for this which can be costly.
If you are buying a house with your child or relative in a joint capacity, so being a named person on the mortgage, this will depend on affordability. If a parent has their own mortgage they are still repaying, this may affect whether a lender is willing to agree to another mortgage agreement. It could be it’s deemed putting a parent into financial difficulty by agreeing to a ‘second mortgage’. Gifting the money rather than agreeing on a loan with your child or taking out a joint mortgage with them is usually the best way to help them. For parents who can afford to, they may wish to set up a trust fund to buy a property rather than giving their child money to buy a house.
Cash Loan to Buy a House – Who Can Help?
Most people may look to borrow money to help with related costs of buying a home, rather than getting a cash loan to buy a house. This includes furniture, home improvements and other essential goods they may need. This would usually be a personal loan or similar, such as an interest-free borrowing option through a retailer. Other forms of loans are not designed for this purpose, such as our quick loans at QuidMarket. We can only help to cover emergency expenses for a short term situation that may occur, such as a repair bill or other unexpected expenses.
Do You Need Good Credit to Buy a House with Cash?
If you are someone looking to purchase a property without the need for a mortgage, you generally wouldn’t need good credit. For mortgage applicants, having a good credit rating is usually expected by mortgage lenders due to the amount of risk with this type of loan. You may find some lenders are able to help, but they may charge higher rates of interest and will only lend a lower LTV that needs a bigger deposit.
There are lots to think about when it comes to planning to buy a property whether it’s for yourself or you are helping your son or daughter. Buying a house for your child is possible, whether loaning the money to them or gifting the deposit. It takes a lot of planning and saving, so starting as early as possible before applying for a mortgage and making an offer on a home is best.
If you require a small loan to help cover any emergency expenses that can crop up unexpectedly whilst saving for a deposit, or once fully moved in, there are many options online. Contact us if you have any questions and click apply now if you want to see how we can help today.
Please visit Money Helper for further information relating to move home or if you are experiencing financial difficulties.