For anyone looking to purchase a new home, we believe there’s a few key things you’ll need to keep in mind to help get you through the purchasing process:
- Mortgage Agreement in principle
- Other costs
Mortgage Agreement in Principle
A mortgage agreement in principle (sometimes called a decision in principle) is arguably the best place to start when you’re beginning to think about buying your first home.
An agreement in principle involves submitting information to a lender (bank/building society/etc) regarding your: income, expenditure, financial commitments and credit history. Then based on this information the lender will let you know how much they would allow you to borrow and if you pass their credit scoring system.
We believe this is a good place to start because it helps you understand what budget you have when purchasing a property. It can also flag up any potential issues you may have, such as poor credit score or large financial commitments.
For an agreement in principle you can approach lenders directly, however, we’d always suggest speaking to a specialist adviser. This will give you a number of advantages, including:
- One single point of contact throughout the whole process
- Access to the whole mortgage market, they’ll find the best option and sometimes have access to exclusive deals
- Expert guidance. If you’ve got unusual circumstances the advisers will either find a solution or let you know the steps you need to take to be eligible for the mortgage you want
- Different lenders have different rules, an adviser can help you find the option that is most accepting of your circumstances
Before the financial crisis of 2008 it was possible to obtain 100% mortgages, but now for the vast majority of purchases you will need a minimum of a 5% deposit.
Additionally, putting down a larger deposit will improve the interest rates available to you. For example someone putting down a 10% deposit will generally be eligible for better interest rates than someone just putting down a 5% deposit.
In most cases lenders will want to see that the funds are your own personal savings, and they’ll look to see the build up of funds over time. However, gifts from direct family members are also generally acceptable provided they’re happy to sign documents confirming it is a gift. In this same vein, inheritance and the sale of other assets are usually acceptable.
There are other more unusual sources of deposit that can still be acceptable in some scenarios. For more information we’d suggest speaking to one of our advisers.
In addition to saving up your deposit and organising a mortgage, there are other costs you need to be aware of.
To purchase a property you will need to instruct a solicitor to act on your behalf. They will communicate with the vendor’s (the person selling the property) solicitors to organise completion of the purchase. They will also carry out “searches”. These can vary depending on the area you are buying in, but generally speaking these will include: local authority searches, environmental searches, water and drainage searches.
First time buyers don’t have to pay any stamp duty on purchases of up to £300,000. For example a none first time buyer would have to pay £5,000 of stamp duty for a £300,000 purchase. Stamp duty will be worked out by your solicitor and they will also handle the payment of it.
As part of the mortgage application, the lender will need to carry out a valuation on the property. This is how they assess if the property is suitable security for the loan. The good news is that many lenders these days either carry out their valuation for free or at a discounted cost.
However, this survey can be pretty basic. If you’re purchasing an older property, or simply want peace of mind, you may wish to get an independent and more detailed survey carried out.