Five Tips For Struggling First Time Buyers

Do you want to buy your first home but feel the odds are stacked against you? Take a look at these five tips.

House prices are still falling. Today Hometrack reported prices fell again in April for the seventh month in a row. First time buyers up and down the country should be celebrating, but getting on the property ladder hasn't got any easier.

Unfortunately for first time buyers 100% mortgages are now a thing of the past, as banks tighten up their lending criteria in the wake of the credit crunch. It's no longer possible to get a mortgage without a deposit making it even harder to buy your first home.

To get a shot at a decent mortgage deal, you'll need a deposit of at least 5% these days. And if the current lending conditions worsen, you could find that you'll need even more.

Perhaps you have been saving as hard as you can only for the goal posts to be moved at the last minute. But even if your deposit is still looking pretty meagre despite months of squirreling money away, you don't necessarily have to kiss buying a home goodbye.

Take a look at these five tips for buying a home sooner rather than later:

1. Can The Bank Of Mum And Dad help?

This won't be possible for everyone but are your parents or other family members willing to help you financially? A bigger deposit means a better deal and therefore a cheaper mortgage. It's still possible to get a decent home loan if you have a 5% deposit, but the more you can put down, the better.

2. Get a legal agreement

If your parents can to help, it makes sense to draw up a formal agreement to give them more security. Let's say your parents lend you a 10% deposit which enables you to buy a home with your partner, but later you split up and the property is sold. Normally, after the mortgage has been paid any proceeds which remain would be divided between you and your ex-partner.

This means your parents risk losing the money they lent you. So to protect them, draw up an agreement where once the mortgage loan has been paid off your parent's loan has priority. This is before any cash is made available to you and your former partner.

This isn't a decision to be taken lightly by your parents. If house prices continue to slide, homes bought now could be at risk of falling into negative equity (where your home is worth less than the outstanding mortgage). In this case there may be no money left to repay your parent's loan if you have to sell up.

Most importantly, make sure you and your parents take legal advice and get any agreement drawn up by a solicitor.

3. Ask your parents to act as a guarantor

If you don't wish to ask for cash directly or your parents aren't able to stump up for a deposit on your behalf, perhaps they might consider acting as a guarantor for your mortgage. Lenders may be willing to lend you more and accept a lower deposit, because they are able take your parents' income into account too.

Crucially, your parents will become responsible for the mortgage if you are default on your repayments.

There are other implications to think about too. Your parent's home isn't directly at risk, but as a guarantor for you, it may restrict their ability to borrow themselves in the future. If they wish to remortgage their own property later on, their capacity to borrow will be affected if they are guarantors for you.

Your parents shouldn't do anything which would undermine their own financial security.

If your family aren't able to help you financially, there are still things you can do:

4. Temporarily  move back home

I know it's hard to go back if you have already flown the nest, but it's a good way to build up your savings fast by drastically cutting back your outgoings. Just imagine all that money in your savings account rather than a landlord's pocket.

5. Temporarily  take a second job

Before you baulk at the idea, think of it as a means to an end. You'll quickly build up a deposit by saving all the income you earn from a second job in a high interest savings account. This may not be possible if you already work long or irregular hours. But assuming your current employer is happy about it, and you have some free time, there's an opportunity to boost your deposit.

If you're really determined to buy a home without a deposit, you may be tempted to divide your loan between lenders. In other words, borrow to fund your deposit from one company while arranging a mortgage with another.

However, I really wouldn't advise doing this. If you have to resort to these measures your finances probably aren't ready for a mortgage. Plus affording both sources of borrowing could be a heavy burden for you and it won't go down too well with lenders either.

If you're really anxious to buy a home but the numbers just don't add up, your best option may be to hold off for a while and save as much as you can while you're waiting. This could turn out to be a far better strategy if house prices fall even further.

More: First Time Buyers Put Off Purchasing | Choose a great savings account to build up your deposit at The Motley Fool Savings Centre | Don't forget The Motley Fool Mortgage Service when you buy your first home.