If you have never bought a property before and do not know your credit rating from your conveyancer, than we have you covered with our simple step by step guide…!
Step 1: Check yourself!
Get your personalised credit report and check it over with an adviser.
What does your credit score say about how you manage your finances? What are all these numbers? What is a default or a CCJ and how can these affect you obtaining mortgage finance?
Even if you are great at managing your money, you may be surprised to see you have a low credit score.
It is easy to fall foul of things you wouldn’t even consider would create a negative impact on your score, so we have put together a useful guide on how to improve this.
It is important to remember, not all lenders use credit scoring to determine your mortgage worthiness! Pay off any small debts that you can, ensure you do not miss any payments and make sure you are on the voters roll at your current address. If you do have any defaults or CCJs, do not worry just contact us!
Step 2: Can you afford this?
Have a good think about what you would feel comfortable paying each month towards a mortgage, and do not forget utility bills and spending money. A lender may say that you can afford a certain amount, but if you are planning on going on holiday 4 times a year this may not be sensible. Use online mortgage calculators to find out how much you may be able to borrow and what the monthly repayments will be. A considerably basic calculation would be 4.49 times your annual income after deducting annual costs of all loans, childcare costs and credit cards.
Ensure you have enough money saved for your deposit and fees for the mortgage. As a rough guide you may need circa £3000 on top of your deposit to pay for lender fees, adviser fees, conveyancing fees and moving costs.
Monthly mortgage costs can vary significantly with the mortgage term you can afford. A good adviser will recommend the bet term for you now and in the future.
All lenders use different multiples to calculate your affordability and we have seen variances of sometime £100,000! Contact us to discuss your affordability and we will know the best lender based on your requirements & personal circumstances.
Step 3: Know your AIP’s from your DIP’s
The best way to know if you would qualify for a mortgage before looking and making offers on properties would be to obtain an Agreement in Principle (AIP), also called Decision in Principle (DIP). You will usually need one of these to make an offer on a property. This will indicate how much you are able to borrow subject to proof of income and a full credit report search typically.
Lenders do this initial search for a few things; a) check your credit score to see if you are eligible. (not all do this) B) check your credit history to see if you have missed any payments or had any adverse or bad credit in the last 6 years and c) check the affordability by cross referencing income keyed with outstanding debts on your credit file.
Just because you have had a DIP or an AIP decline with one lender, does not mean it will not be accepted elsewhere. If you have complex credit, contact us! We will know exactly who will accept it and who probably will not.
Step 4: The Housing Market.
What are the property prices like in your area? How many bedrooms will you need, and do you want a garden? Look online at properties for sale and work out what is important to you. View some properties as they are sometimes different from the photos! Consider what will happen with house prices in your area and can you add any value to a property? Now you are becoming a homeowner, equity (the amount of money you own in your property, the difference between value and the mortgage) will become your focus over the next 25 years or longer!
Plan for your future, will you be moving again in 2 years or do you want to buy your forever home now? How much equity will you have in the property in a few years’ time? Consider if you want to buy a home that needs work or if you want to just move your sofa in and relax.
Step 5: Found the One?
Once you have found that perfect home, make an offer with the selling agents. You may need to show the agent that you have that Agreement in Principle, proof of deposit and ID to have your offer accepted.
Your selling agent may encourage you to use their in- house mortgage broker and may suggest that the purchase will go through quicker if you do. This is not true; ensure you are happy with your choice of mortgage adviser and you trust them before proceeding. Here at South Yorkshire Money, we have experience in all types of purchases from new builds to development loans.
Step 6: Mortgage Application
This is where we take over the hard work and submit a mortgage application on your behalf, we will ask you for more documents at this point. Here is last of things the lenders can ask for:
- Employed – 3 months’ pay slips & P60. If bonus is payable less than monthly, provide these too as proof. If you have recently commenced a new role, then send your employment contract. Some lenders would be happy with this, others not.
- Self-employed? - At least 2 years of self-employment income evidence, so your tax calculation (formally SA302) along with the supporting tax overviews. If LTD company, 2 years accounts.
- 3 months bank statements for all accounts you use. I.e. salary, bills, savings accounts.
- Gifted deposit? A gifted deposit letter can be used, some lenders have their own forms too. The giftor needs to provide proof they have the funds or send them to your account. Sometimes we need the ID of the giftor too.
- Your Identification, so passport and driving licence will prove who you are. And a recent utility bill, (not phone) will prove where you live.
- Proof of rent or mortgage payments
- If employed less than 12 months, details of previous work.
- Selling agent details
- Purchase property details, type, construction type, bedrooms, year built, tenure.
Solicitors – usually best to check with the broker they are on the lenders panel before paying them any fees for work. We will also offer the services of our conveyancer and provide you with a quote for the legal work required.
A typical and straightforward mortgage application process will look as follows:
- Application submission
- Assessment of documents by case manager or underwriter
- Valuation instruction
- Valuation assessment
- Mortgage Underwriting assessment for offer
- Mortgage Offer
The buying process can typically take around 6 weeks to 6 months! But on average 2-3 months.
We have lots of experience with mortgage lenders and have built up great working relationships with underwriters so we will be fighting your corner all the way! Try not to worry about your application, we will keep you informed all the way and are on your side and we will update you regularly, even if there is no update!
Step 7: Conveyancer/ Solicitor
Your conveyancer should have sent you a welcome pack to complete regarding all the basics of the sale / purchase. They will use this to ensure there will be no extra-legal work to carry out and check it against the Official mortgage offer form the lender.
They will carry out local searches on the property with the local council, such as coal mining, any planning granted and other environmental factors that may affect the property in the future.
They will liaise with the seller’s solicitor raising enquiries back and forth until all enquiries have been satisfied and prepare the contracts for exchange.
They usually only update you at key points unless they need to inform you of something urgent, that they need your input with.
Ensure you get paperwork back to your solicitor as soon as you can and answer any queries they have immediately; they are working with your best interest in mind and will talk you through anything you do not understand to complete as soon as physically possible.
Step 8: Exchange and Completion
Your conveyancer will carry out the exchange, which is the day that contracts are exchanged between you and the sellers, completion is usually days following unless it is a new build as they tend to exchange earlier. On completion day, if you are in chain, the person at the top of the chain starts the process of transferring the funds down the chain until it is your turn and you become the legal owner of your new home! The solicitor then calls you to confirm legal completion has taken place and then you can arrange to get the keys with the selling agent / builder. You can now pick up your keys and arrange a moving in date.
Keep calm, you are almost there! Arrange your removal company well in advance, organise your belongings into labelled boxes to ensure nothing goes missing, wait for the call from your solicitor and arrange to get the keys! Don’t forget the obligatory photo outside your new home with your keys! It is the rules! Congratulations, you are now a homeowner and have a ortgage for at least the next 25 years!