Before you even find a property that you want to buy, it's often worth obtaining a Decision in Principle.
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.
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.
Making a formal mortgage application:
When you have found a property that you want to buy and decided on the mortgage you want, we can make a formal mortgage application. 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.
When we 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.
The mortgage offer:
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.
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. However, the lender can withdraw the offer at any time.
Offer to completion:
Your home may be repossessed if you do not keep up repayments on your mortgage.
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.