6.2.2 Financial planning when buying a home

Hi, I'm Heather. I've managed to get some savings together and I'm going to buy my first home!

Here's my dream house!

I know, I know... let's get practical. I have some deposit and I'll need a mortgage and I guess that's going to decide what I can afford.

This financial planning model looks like a great place to start!

I'm at Stage 1: Assess my situation.

I can afford to pay 500 pounds a month for a mortgage. My savings are 12,000 pounds and my parents have said they'll give me 10,000 pounds towards the deposit.

I reckon that's enough to get me a one-bedroom flat.

So that's Stage 1 sorted.

Now for Stage 2. I like the idea of a repayment mortgage - provided I make all the payments, by the end of 25 years the mortgage will have been completely paid off.

My budget's quite tight and everyone says interest rates are going up next year, so a fixed-rate deal where my payments stay the same every month sounds good. I used a mortgage calculator to work out that 500 pounds a month at current interest rates means I could borrow up to 85,000 pounds. With the deposit, that means I can look at flats up to about 105,000 pounds.

OK, onto Stage 3: let's get house hunting!

I found a flat for 95,000 pounds. The building society has given me a mortgage, but only for 80,000 pounds. So I used Mum and Dad's gift and 5,000 pounds from my savings to make up the rest. It's going to cost another 1,000 pounds or so in fees and moving costs, but that still leaves me with 6,000 pounds of savings in my rainy day fund.

I'll check in a year or so to make sure the mortgage still looks like a good deal. And who knows! Maybe I'll win the lottery and be looking to get my dream home after all!

One can dream!