Bank Loan Basics: What You Need to Know Before Buying a Home

Thinking about a house but not sure how a bank loan fits in? You’re not alone. Most first‑time buyers wonder which loan is best, how much they need for a deposit, and what their credit score should look like. In this guide we’ll break down the main pieces of a bank loan, give you quick tips for getting approved, and show how to keep monthly payments affordable.

Types of Bank Loans You’ll Meet

There are three loan styles that show up on almost every property website. A fixed‑rate mortgage locks your interest for the whole term, so your payment never changes. A variable or tracker mortgage follows the Bank of England rate, which can make payments go up or down. Lastly, a government‑backed loan (like Help to Buy or shared ownership schemes) lets you borrow a smaller amount and pay the rest later.

Pick the one that matches your risk tolerance. If you hate surprises, fixed‑rate is safest. If you can handle a little swing and want a lower starting rate, a variable loan might save you money.

How Much Do You Really Need for a Down Payment?

Many people think you must put down 20 % of the price, but that’s not the rule. In the UK you can find loans that accept as little as 5 % deposit, especially if you qualify for shared ownership. A 5 % deposit on a £250,000 house is £12,500, while a 10 % deposit would be £25,000.

The lower the deposit, the higher the loan‑to‑value (LTV) ratio, and the more interest you’ll pay over time. Use a simple calculator: Loan amount = Purchase price – Deposit. Then compare the monthly payment for different LTVs to see what fits your budget.

Saving tips: set up a separate savings account, automate a small weekly transfer, and cut one non‑essential expense each month. Even £50 a week adds up to over £2,600 a year.

Now let’s talk credit scores. Lenders look at your credit rating to decide if you’re a safe borrower. Scores above 700 usually qualify for the best rates, while scores in the 600‑650 range still get loans but at higher interest. If your score needs a boost, pay off any lingering credit‑card balances and avoid hard credit checks for a few months.

When you apply, have these documents ready: recent payslips, tax returns if you’re self‑employed, a bank statement showing your deposit source, and proof of identity. Having everything organized speeds up the process and shows the bank you’re serious.

Finally, think about the total cost, not just the monthly payment. Add in stamp duty, legal fees, and insurance. A quick rule of thumb is to budget an extra 5‑10 % of the purchase price for these out‑goings.

By understanding loan types, realistic down‑payment goals, and how your credit score affects rates, you’ll walk into the bank with confidence. Use the tips above, run a few numbers, and you’ll be closer to turning that property listing into your new home.