The Derbyshire Mortgage Services team has put their heads together to offer some top tips for buying a property.
Deposit is King!
FACT: the more deposit you have, the better interest rate you can get. Almost all lenders require a deposit to act as security for a loan of such size. This is usually a minimum of 5 to 10 per cent of the value of the property. If finding the extra money to save for a deposit is not proving easy it may be possible to use a parent or relative as a guarantor. This does not necessarily mean that the deposit money is a gift, but just there to guarantee security on the loan. They can secure it against their own property.
Your adviser should complete a 'fact find' to find out about your lifestyle, income and expenditure. The information needed for this includes details of any income streams, regular financial commitments and any loans, hire purchase or outstanding credit card balances. Each mortgage lender calculates affordability slightly differently based on their lending criteria. It's important that your adviser has accurate details of your current situation so that they can identify potential lenders and any reasons mortgage providers may not be willing to lend at this early stage. It is also advisable to do your own personal credit checks. If you have any doubts regarding your credit report ask your adviser for advice on how to improve your credit score.
Decision in Principle (DIP)
When you find a house, you'll probably have to move fast to secure it. To prevent delay while sorting out a mortgage, you could first get a "mortgage (decision) in principle". This is a conditional offer made by a mortgage lender that - provided the information you give them is correct - they will "in principle" give you the loan you have discussed with them.
Many estate agents will require this, but it is NOT essential. If your adviser has checked affordability and you have a good credit score then it is not essential to have a DIP in place. A decision in principle will leave a footprint on your credit report, which is why we do not always recommend getting this done until you have had an offer accepted on a property. A decision in principle is not a guarantee that a lender will lend, it is still subject to application and a suitable valuation on the property, but it may give you the competitive edge over other potential buyers.
The fun part! Looking for a house can be extremely exciting and daunting at the same time. Knowledge is power, so do your research on the property market in the area you want to buy. You'll not only feel more confident about your decisions but you'll also be able to ask the right questions when faced with an enthusiastic seller or estate agent. You can easily see what other houses have sold for online and get a feel for your bargaining power with local knowledge. Be sure to ask plenty of questions; is the property leasehold or freehold? Is there a chain? Invite a good friend to ensure you don't get carried away! It's often easier to make a list of what you don't want than what you do. Add to the list as you view properties to help you narrow down your decision. If you are viewing a lot of houses, be sure to take notes as it can get confusing and you won't remember everything!
Make an Offer
Don't be afraid to make an offer. If you've done your research, you know what the market is doing and what you can afford and then you will know how strong a position you are in. The offer is usually subject to survey. Your adviser should have given you an idea of what is affordable based on your affordability calculations.
Once your offer has been accepted, your adviser will be able to start moving the mortgage application forward. It is at this point that your adviser will do a Decision in Principle (DIP). There may be fees to pay upfront to the mortgage provider and you will need to provide documents to your adviser such as payslips, P60 or net profits (if you are self-employed), passport and proof of current address. Your estate agent should send a "Memorandum of Sale" to all the relevant parties, together with a copy of the property particulars. They should also keep you informed regarding the progress of the other people in the house buying chain.
Surveys and Reports
The most important purchase most people make is buying their own home. The price of a survey may seem like an extra expense, but it's advisable to get a surveyor to tell you whether you are making a solid purchase or facing a bottomless pit.
You might already have had a Mortgage Valuation, but this is prepared for the lender, not you. The purpose of a mortgage valuation is to tell the lender whether or not the property provides good security for the loan they are making to you. The surveyor only carries out a very brief inspection of the property and reports on repairs and problems which have a significant effect on value. It doesn't give you the information that you need to decide whether or not the property is the right one for you.
Having a survey before you make a legal commitment to purchase will tell you what is wrong with the house so that you can get estimates for work and budget accordingly, perhaps even re-negotiate the price so that it reflects the cost of essential repairs. It will also tell you whether or not you are paying a fair price for the property and highlight any possible problems on resale.
A Basic Valuation: Your lender (assuming you are getting a mortgage) will instruct a surveyor to do a valuation for security on their behalf. This is a basic valuation for the lender's purposes only and as a buyer you will have no recourse against the surveyor if they make a mistake.
A Homebuyer's Report is the middle level. The Royal Institute of Chartered Surveyors (RICS) says these are suitable for 20th century plus properties 'of traditional style and materials'. The report highlights important problems that could affect the property's value and you can ask the surveyor to look at any areas of concern you may have. The lender can arrange this or you can get an independent surveyor.
The Building Survey is a more comprehensive survey and provides a detailed report on the property's construction and condition. This is the latest name for what everyone still calls a Structural Survey. There is no standard format; each surveyor has their own way of presenting their report.
Don't forget to add VAT to surveyor's bills. Ask them if they will discuss the report with you and ask for two copies; one for you and one for your solicitor. Your solicitor might flag something that you hadn't noticed.
A recommendation from a friend or your adviser is often the best way to appoint a solicitor. Your solicitor is responsible for the conveyancing process. Once you have told the solicitor that you wish to use their services you should receive a Letter of Engagement or Confirmation of Terms of Business, this needs to be signed and returned. You will need to provide original identification documents to your solicitors. Your solicitor will then contact the seller's solicitor and request a draft contract; this will include information such as the property title, and details of the lease if the property is leasehold. Meanwhile your solicitor will begin conducting searches and raising any other legal enquiries. Searches include detail of previous coal mine shafts, water drainage, land registry checks and confirmation of boundaries. They will also examine your mortgage offer in detail. Prior to the date of exchange they will need confirmation of the mortgage funds and mortgage provider. The mortgage provider will need confirmation that the new property is insured for at least the cost of rebuild. It is advisable to have your buildings insurance in place from the date of exchange. Buildings insurance is often provided with contents insurance and at Derbyshire Mortgage Services we can provide advice on this if desired. Overall the solicitors' checks and processing should take 4 to 6 weeks on average.
Signing your Contract
Once the solicitor has completed all checks and examined the contracts, you will be invited to sign your contract. You will need to transfer your deposit to your solicitor's bank account so it has cleared in time to exchange contracts.
Exchange of Contracts / Completion
The vendor and buyer's solicitor will exchange contracts so that the details can be checked over. From the point at which contracts are exchanged you are legally bound to buy and the seller is legally bound to sell. Should either party back out the other will be entitled to claim compensation for losses arising. Your solicitor will send your deposit to the seller's solicitor.
Your solicitor will then draw up the transfer deed so that the property can be registered in your name as soon as possible after completion. They may also carry out any further checks required. These include official checks at the Land Registry to protect the buyer and lender.
During this period you should receive a statement from your solicitor showing all your expenses and giving you a final figure which you will need to make sure is cleared in to your solicitor's bank account before completion. If you are taking out a mortgage your solicitor will draw down the loan amount in time for completion.
Your solicitor will arrange for the title deeds to be registered in your name and if the property is leasehold ensure that your name is entered on to the lease. They will also get the transfer stamped to officially approve the sale.
On completion of the above, the solicitors are the ones will authorise the agents to release the keys once purchase monies have been received by the seller's solicitors. If the chain moves smoothly you should be able to collect the keys from your estate agent on the pre-arranged date.
Lenders no longer keep title deeds, the title is held electronically by the Land Registry therefore any previous deeds turn into merely title documents and are usually sent to the buyers to keep safe.