SUMMARY: Entering the property ladder may not require you to save as much as you may think. We take a look at some of the options in raising your deposit on your first home.
Raising a deposit for your first home
By Melinda Varley
The costs associated with buying a first home have risen by 94% in the past six years, with increases in house prices and charges hitting mostly first-time buyers hard.
While first-time buyers in 2000 needed an average of £4,698 to cover stamp duty, solicitors bills and mortgage fees, in 2006 the average became £9,113 making it even harder to raise a deposit on your first home. (mortgage quotations)
A deposit is the amount of money that you will be required to put forward to the purchase of a property, with the balance made up from mortgage finance.
The size of your deposit may affect the interest rate you pay for some mortgage packages – such as, the more you put down as a deposit, the lower the rate of interest.
A typical deposit would be 5-10% of the total price of the property. Therefore, if you were required to provide a 10% deposit and the purchase price was £100,000 you would need to put down a £10,000 deposit. (life insurance)
Consider that most lenders will also look at your disposable income when lending you money and will take into account your existing loans. It is also possible that with house prices being so high, you may need some help with getting together a deposit.
You may find a few lenders who will look at lending you a deposit as part of the overall mortgage package. However, a major disadvantage of this could be if the value of your property falls, you may find yourself in negative equity. This means that you could end up owing more than you borrowed.
If this is your situation, it is important that you take the correct advice. It is imperative that you do not over commit yourself to a mortgage. If you do, your home could be at risk if you cannot keep up repayments and you could end up in court fighting to keep it.
You could instead decide to take out a personal loan to use as a deposit. A personal loan is one of the least complicated financial products available but like anything, you will need to be sure of the terms before signing an agreement. (mortgage interest rates)
There are two types of personal loans offered by lenders such as banks and building societies: secured loans and unsecured loans.
A secured loan is one where the property will be used as security on the loan. If you arent able to pay off the loan according to the terms agreed with the lender, then your property may be at risk of repossession. As a first-time buyer this would probably not be a relevant loan for you unless a member of your family were to take out a secured loan to help you.
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