Before you even find a property that you want to buy, it's often worth obtaining a Decision in Principle.
This is a statement from a lender showing how much it is willing to lend you in principle. The advantage of obtaining a Decision in Principle is that it demonstrates to a seller that you are a serious buyer and that a lender has agreed in principle to lend you enough money to purchase the property.
It is worth noting that a Decision in Principle is not a guarantee the lender will give you the money for the property you want to buy. Whether it agrees firmly to lend you the money will depend on the exact details of the property, the accuracy of the information you have supplied about yourself, and the outcome of credit checks.
To apply for a Decision in Principle, you will need to complete a form and may need to give details of your employment, income and financial commitments. The lender might want to run credit checks on you at this stage and may ask your employer for references to make sure you are a reliable person to lend money to. The lender can then use this information to tell you how much it's prepared to lend you in principle.
Although you may not know exactly which mortgage you want at this stage, it helps to get a mortgage certificate from the lender you are likely to borrow from. This will speed up the process later when you make a formal application because it will already have some of your information. Decisions in Principles are usually only valid for a limited amount of time, typically about three months, so make sure you know how long yours is valid for.
If you want to keep your options open, there's no reason why you shouldn't obtain a Decision in Principle from more than one lender. However, unless you anticipate problems with a lender agreeing to the amount you want to borrow, there's no real reason to do this. And if each lender you go to carries out a credit check, it could harm your credit rating.
When you have found a property that you want to buy and decided on the mortgage you want, you can make a formal mortgage application. This often involves completing a long and complex application form. If you have any problems filling it out, you can always ask your lender or financial adviser for help, but it's important to remember that you are responsible for the accuracy of the information you provide so check it all carefully before you sign.
At this point the lender will want to know about your circumstances, and, if applicable, those of the joint borrower, in more detail. The lender will need to know exactly how much you want to borrow and may want to know where the rest of the money (your deposit) is coming from.
It will also want to know details about the property you are purchasing, such as how much it costs and what type of property it is. It is important to be as open and honest as possible when completing this form as this will help to avoid delays with your application later on.
As well as completing the application form, you will need to supply a variety of documentation to back it up. If you are making a joint application, you will often have to supply documentation for both of you. Exactly what will depend on the lender involved and your circumstances but might typically be around four or five items like the ones listed:
pay slips (often for the last three months)
audited accounts or Inland Revenue statements of account going back two or three years (if you are self-employed)
P60
National Insurance number
bank details
proof of identity such as a passport
proof of address such as a recent utilities bill or bank statement
existing housing details (such as a landlord's reference)
personal pension details
loan or HP agreements
mortgage statement
life insurance policy documents.
Not supplying the correct documentary evidence can slow down the application procedure. When you know which lender you want to get your mortgage from it is advisable to ask which documents it is likely to require so that you can start collecting them.
Mortgage applications can be delayed for a number of reasons. It is worth contacting your lender at regular intervals for a progress update and to make sure it has everything that it needs.
When you have submitted your application form, the lender will arrange for a qualified valuer to inspect the property. You normally have to pay for this valuation although some mortgage deals include a free valuation or offer to refund the valuation fee after the mortgage is finalised.
The mortgage valuation is simply to allow the lender to establish the value of the property and help it decide whether it is willing to lend you the money. If you require a more detailed survey of the property (which is advisable) such as a homebuyer's report or a buildings survey, you will need to request this yourself. It's advisable to get the same valuer to carry out the mortgage valuation and any more detailed survey you require as this will save time and money.
With some mortgages you will also be charged a fee at this point. The fee will depend on the lender and the deal and in some cases may be non-refundable.
Applying for a mortgage in Scotland is largely the same as in the rest of the UK, but with one main difference.
Because of the way the house-buying process works in Scotland, you have to be sure, before you make an offer on a property, that your lender is willing to advance you enough money to pay the purchase price. This is because, in Scotland, when an offer on a property is accepted and all the terms of that offer are agreed to, a legally binding contract is created, tying both the buyer and the seller to the sale. If you don't complete the transaction for any reason you could be liable for any losses that the seller suffers. This means it's very important to have your finances sorted from the beginning, and to be very clear about the amount of money you can borrow and that your lender is willing to advance you a loan against the property that you're interested in.
All property transactions are conducted through a solicitor in Scotland, so talk to yours if there's anything that you are unclear about.
What happens when you receive a mortgage offer? And what are the next steps to accepting or declining the deal?
If your mortgage application is successful your lender will issue a mortgage offer, also known as an offer of advance. This offer will include an updated Key Facts Illustration, laying out the terms and features of the mortgage including the interest rate and the number of years the mortgage will run for. It is important that you check these details to ensure that the offer matches the deal you applied for.
The mortgage offer will also state the conditions on which it is offering you this mortgage. It is very important that you read and understand these conditions, because if you decide to go ahead and finalise the mortgage, the terms of this offer will be binding.
At this point, however, you are not tied to the mortgage and can pull out and go to another lender. If you do decide to pull out, you may lose any non-refundable fees such as the valuation costs and booking fees. A mortgage offer is generally valid for only a limited amount of time (usually between three and six months), however, the lender can withdraw the offer at any time.
If you want to go ahead with your mortgage, you will need to accept the mortgage offer. From this point a large amount of the work will be carried out by your solicitor or licensed conveyancer.
There are now just a couple of things that will happen in relation to your mortgage before it is all finalised.
You will receive a document known as a mortgage deed from your solicitor or licensed conveyancer. This is the legal contract between you and your lender. Your solicitor should explain the conditions of the mortgage deed to you and both you and the lender will need to sign it.
Before completion, your solicitor or conveyancer will send a report to your lender known as the 'report on title' which tells the lender the results of searches carried out on the property and gives details about the legal title to the land. The lender then checks that everything in this report is in order. Following this, your solicitor/conveyancer will ask your lender to transfer the money you are borrowing to your solicitor/conveyancer. On the day of completion the outstanding purchase money is transferred to the seller's solicitor/conveyancer and you receive the keys to the property.
Following completion, your solicitor/conveyancer will contact your lender to confirm that completion has taken place.
At some point after this you will usually receive a letter from your lender confirming that the mortgage is active and the amount that your monthly payments will be. Depending on when in the month completion occurred, your first payment might be slightly more than your standard monthly payment. For example, if you completed in the middle of the month, the first payment you make may need to cover the remaining half of the month in which you completed and the following month. This will all depend on when in the month you choose to make your payments and how your lender is charging you. Make sure you check with your lender what your first payment will be so that you can plan to have enough money available.
Once your mortgage is in place, you will receive regular statements from your lender. These statements will arrive at least once a year, although with some mortgages you will get them more frequently.
The information on these statements varies depending on the lender although certain information must be shown. This includes details of the payments you have made throughout the year, the interest rate and the outstanding balance and duration of the mortgage.
You should check these statements carefully to make sure that your lender is charging you the correct interest rate. You should also check the other details of the mortgage, such as the repayment type and the length of the mortgage and ask your lender about anything you don't understand.
If your mortgage application is unsuccessful, it is worth asking your lender why. There are two main reasons why you might be turned down for a mortgage:
because
of difficulties with your circumstances (such as your credit history,
income or age)
because of problems with the property.
In these instances, it is worth approaching other lenders as they
may apply different criteria. However, you may be obliged to tell
them that you've had a mortgage application refused before.
If the problem is related to your credit history, you can ask the lender to tell you which credit reference agency it used and contact it to obtain a copy of your record. There is a charge of £2 for this. If it transpires that something on your credit record is incorrect, you can ask for it to be corrected.
If you have been refused a mortgage because your situation is unusual in some way, then it would be worth talking to us about it and we will be pleased to assist.
There are also some lenders who specialise in lending to people with poor credit records, although, if you go to one of these lenders, you may have to pay a higher interest rate.