Preparing to buy a home the smart way

Many homeowners think that finding a home and then signing a mortgage is all they need to do before they own a home. For many, this is the beginning of a nightmare.   First-time home buyers need more than 5% or 10% down payment and a Saturday afternoon off, before they start hunting for their new home.

The fees and costs vary depending on the property and lender. 

The lender usually charges a basic valuation survey.  The cost will vary depending on the lender and property value.  This fee is usually a few hundred pounds. To check the property’s condition you’ll need a more detailed survey.   This will require a few quotes.  First-time home buyers, or those who are considering a home older than 20 years, should ask for a full structural survey.

If HIPs is launched then a full structural survey may not be necessary.  Many homeowners are currently buying homes that are designated ‘unfit for habitation.’ These homes are the ones that forced the introduction of HIPs.  Many young homeowners end up with a home that requires tens of thousands of dollars in repairs.

The National House Building Council (NHBC) Buildmark Scheme, or another warranty, may cover homes less than 10 years old.  Unfortunately, many homeowners do not even think about derelict house construction and faulty wiring until after they have signed their mortgage.

While most people know there is a stamp duty, most do not worry about it until it is time to pay it.  If the purchase price is more than £125,000 Stamp Duty Land Tax is due on one to four per cent of the property value, unless the property’s in a ‘disadvantaged’ area.

If you are buying a new home then ask if the developer is paying the Stamp Duty Land Tax for their buyers.  Many are paying the Stamp Duty Tax in a bid to make their homes more attractive to potential buyers.

Legal fees can vary several hundred pounds, and not all lawyers are equal.  Homeowners have been hit with extra insurance fees, lost their mortgage because they did not save enough money to buy a home, or ended up renting until their property is vacated, because the lawyer didn’t believe it was their responsibility to let the client in on little variances in the laws. 

Most people believe that lawyers are looking out for their best interests. In a perfect world, this should be true. Unfortunately, this is not a perfect world.  Taking some time to learn what is necessary, and asking for advice, can save hundreds of dollars, and possibly, heartache.

Land registry fees are usually less than one hundred pounds, but it is one of those annoying fees that quickly eat up your moving costs.

If you do not have a big down payment, expect to pay lender insurance.  This is extremely expensive, and not all lenders allow homebuyers to add this cost to the mortgage.  However, adding it to the mortgage can be expensive in the long run.  Instead, save the money first, and save paying interest for the next 20 – 40 years.

Mortgage fees can themselves be expensive. Ask many mortgage lenders what the fees are and they will wave away the cost promising that you can add them to the mortgage.  There are two reasons they do this. The first is because they don’t want you to shop around.  Mortgage fees can vary by hundreds of pounds between mortgage products and mortgage lenders.

A smart borrower should also ask what the closing fees are.  These are not due at the beginning of the mortgage, but they can add up to several thousands of pounds.

There is always insurance.  Most homeowners forget all about content insurance until they are in their home.  It may not be a big expense for most homeowners, but the cost of building and content insurance plus mortgage insurance can make a big difference in the amount of expendable income the household has to live on.

Ask what the council tax is before you buy.  Most homeowners never ask what the council tax is. In fact, ask a bunch of your friends and you’ll learn that many of them didn’t know what their tax was until they saw the paperwork.

The final expense is the moving cost. Many homebuyers do not start comparing moving companies until they own their homes.  The cost of moving can be prohibitive, especially if the company cannot finish moving your belongings and store them overnight. 

One last expense to consider is life insurance. Thousands of families lose their homes each year because there is not enough life insurance to cover the mortgage, living expenses, death costs, and incidentals.  Life insurance can protect a lifetime worth of wealth building, and be a final gift for the family.

These expenses are sobering for many, but they will only delay homeownership for a few months. Taking care of these incidentals will ensure moving home is the wonderful experience it is meant to be.