How to Find, Finance & Buy a house! (Buyers Guide: Houses)

Member Name: drewboy

Product:	Buyers Guide: Houses
Date:	14/02/06 (767 review reads)
Rating:

Advantages: The feeling you get when you unlock the door for the first time

Disadvantages: Things can and likely will go wrong if you are complacent

I have been helping people to buy homes all over the UK for nearly three years now. I have sat all the relevant exams and have the qualifications. I therefore thought it might be helpful for me to try and put together as definitive a guide to purchasing your home as I can, pointing out the pitfalls, and hopefully giving hints and tips to make this as easy and stress free (however there will be stress, believe me, I have done it!) as possible.

In this review, I will cover how to go through this process in England, Wales and N. Ireland however I will point out the differences in the process for people looking to buy in Scotland as there are significant differences up North that a buyer would need to know about.

Ok, here we go!

Finding out How much you can afford
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So, of course we would all like to buy that £3/4 mill detached mansion in the country but lets face it, most of us simply can't afford that. Therefore, the first thing I would suggest you do is to sit down and have a good hard look at your financial situation and try to establish how much you can afford extra each month. At this point, it is important to remember that its NOT just the mortgage payment you have to be able to afford, you may have other bills like insurances to pay for (will go through that later), if you are moving to another area you may have to travel further to work which could mean extra travel costs like petrol/train fares etc right down to extra electricity/gas costs if you are moving to a bigger property.

I would advise doing that first as when you approach a bank or building society they may ask you straight away what sort of repayment figure you think you can afford and if you are able to give them one and back it up, you may be able to get more money in terms of mortgage from them.

Next, you should start approaching different companies to get an idea how much they would be prepared to lend you. This amount can vary from lender to lender and is usually arrived at in different ways. The normal income multiples (the amount the company will times your income by to get to a figure) is usually around about 3x a single income and 2.5x joint. They will also ask you about any credit facilities you have and take this into account. To do this, they will normally multiply your monthly credit outgoings by 12 and then take this off your salary figure BEFORE they multiply it. This is because it shows how much of your yearly income you will actually get and give them a better idea of what you can afford.

***a note on incomes, if you are employed, they will look at your basic gross annual income and are likely to include bonuses and overtime as long as you can prove you regularly receive it. If you are self employed, they will take your average NET profit figure (the figure you declare to the tax man), usually from a 2 to 3 year period.***********

Now a lot of people will tell you to get an agreement in principle or a mortgage certificate at this point and yes, this can be useful, but it is NOT a mortgage offer and the company will be in NO way obliged to grant you the mortgage, so do not go gung ho and commit yourself fully to anything at this point. The company will want to do credit reference checks (although some can do it at this point) and underwriting checks at a later date and may still decline your application. This is a good reason not to try and overestimate your income to the advisor or skimp on what you actually have in credit as it will only hurt you in the long run. Best to be as up front as possible, they will find out!

Ok, the figure that the advisor comes back with based on these figures will be a guide and is unlikely to be set in stone. The vast majority of mortgages that I have arranged are for more than this figure so don't panic if you think it is too low for what you will need, there is room for manoeuvring here. Depending on how much of a deposit you are putting down, the company may be willing to lend more money to you. This is because the more money you put down, the less risk it is to the company that they would lose any money if they had to re-posses the property. This top line figure is usually about 40% above the basic one they gave you at the start. The mortgage company will not however grant this unless you can prove to them that you can afford it - the LAST thing they want to do is go through a re-possession no matter how much equity you have in the property because lets face it, if you can't afford to pay the mortgage, the equity aint gonna pay it for you!

The Mortgage Quote
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This is where a lot of people get VERY confused. However, things are not as bad as they seem because all mortgage advisors now have to sit exams (Certificate of Mortgage Advise & Practise) and need to be registered with the Financial Services Authority to be able to give you advice. If you are not sure of things insist on the "Advised" route rather than the "non-advised" . This means that they will go through all of your circumstances and options and then make a recommendation to you based on this. They then have to put this in writing and the letters are kept on file for 6 years should you disagree with anything after anything has gone through, giving you some comeback if what you ended up with is not what you thought you were getting.

The type of quote you get can be split into three different area's and a general rundown is as follows.

Interest Only or Repayment.
This refers to the REPAYMENT METHOD you have on your mortgage. The main difference is that with a repayment mortgage, you will pay off both the capital (the amount you borrowed) and the interest in every monthly payment ensuring that your mortgage is paid off at the agreed end date. If you opt for interest only, you will only pay interest each month and the amount you borrowed will still be outstanding at the end of your agreed term. With this type of mortgage, you can have some kind of investment in place that you pay seperately to pay off the balance at the end of the term. This is how Endowment Mortgages work (although Endowments are not sold as much these days) although some opt not to have anything in place as they may not plan to live in the property till the end date and plan to pay off the mortgage with the proceeds of the house. Other options would be to take out an investment ISA or link it to your pension (where the pension lump sum pays off the mortgage for you).

****note about endowments, the problem that came about with these was that they were set up with overambitious growth rates. This is because the plans assumed that they would grow at about 12% when in fact they only grew at about 8% or 9%. This meant that at the end of the plan, there was not enough money made on the endowment to cover the whole mortgage, leaving what is known as a 'shortfall'. Nowadays, plans are set at a growth rate of about 6% so are a lot safer (though i MUST point out that the risk is still there, this is by NO means a recommendation)*************

The Interest Rate
There are loads of these about but there are only a few TYPES you can go for.

Discount/Tracker - This refers to rates which track (or follow) either the Bank of England Base Rate or the providers Standard Variable Rate (SVR). There are usually available for 2-3 years and are NOT fixed. They are usually the cheapest option but if the mortgage rates go uo, so will your mortgage.

Stepped Discount/Trackers - These rates are the same as above except the deal will be even cheaper at the start but each year the percentage it track the SVR or base rate will change, making your mortgage higher.

Fixed Rates - These rates do exactly what they say on the tin. They are fixed for a set period and will NOT go up or down with any rate change. They are initially higher than the trackers but if rates shoot up, your mortgage won't.

With these rates, you may find there is a tie in period where if you were to pay off the mortgage within a set period, you will be charged a penalty. This penalty will usually amount to what you have saved compared to the SVR so that the company can re-coup the benefit they have given you. Make sure you get the advisor to FULLY explain these as they can be costly.

A newer thing that you can be offered is a flexible mortgage or an offset mortgage. A flexible mortgage is where you can set an agreed limit of borrowing and either pay off as much as you want in overpayments or lump payments to save you money in interest or to fund underpayments on your mortgage for times you think you may be strapped for cash. An offset mortgage is where you can offset your savings or current account against the money you owe so that again you don't pay interest on this amount you have in your savings or bank account. These can all work in very different ways from different providers so again, make sure they are explained fully to you.

The last part is the mortgage term. This is the amount of time you will spread the payments over and is usually between 5yrs and 35yrs. The longer you take it over the smaller the payments but then the more you will pay in interest. Again, you can ask for advise on this.

When you decide on this, it will be put in writing to you on a quotation and again when you receive your mortgage offer (after the formal application). Make sure you check these for any mistakes.

One final thing to look out for in the quotation is the Mortgage Indemnity (MIG) or High Loan to Value Fee. This is a fee some lenders charge to cover the extra risk they take in providing a loan with small deposits. They use the money to pay for an insurance policy to cover any potential losses they may make they need to repossess and when they sell the property they don't make enough money back to cover what you owe. The usually only charge this at a certain lever (if the loan is 90% of the value of the property or more) so it may save you thousands of pounds if you make your loan only 89.9% - usually only a couple of hundred pounds.



Looking for You New House
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Now that you have a good idea of how much you can borrow and how much it will cost, it's time to get looking! There are various mediums out there to look through from the obvious estate agents, to solicitor firms, property websites, local property newspapers right down to Ebay! It's a good idea to utilise all of these, you never know which one might deliver the house you want.

I would advise you going round as many properties as you can as this is the best way to be able to compare each one and each visit could throw up different problems with properties that you may not of been aware of in the past. If you are viewing with an agent present, do not let them push you into any commitment at this point and if you are there with the sellers remember they are trying to sell - they may not be entirely truthful with any questions you ask and will have arranged the house in such a way that it looks its best. Don't forget to think about where you would put YOUR stuff and how likely it is that the kitchen will smell of fresh bread every day if you lived there!

Once you find a house that you like, don't go rushing in and put an offer in. You really should try and go back at least once, 2,3,4 time or more to make absolutely sure. Things you should be concerned at at this point is things like measurements - take a tape measure and details of how big your stuff is, if your thinking of changing things like the kitchen or the bathroom take measurements to go and get rough quotes done, local amenities like schools, shopping, etc, take note of things like how big the garden is, how close to a main road (could be a bad thing if you have kids) and anything else you can think of that you would have to put up with if you were living there. Take a drive in the area at night to see how quite/noisy it is and also when you are not expected to see what the neighbours are like. Don't be shy about knocking on the neighbours door if you want as you will be living next to these people if you buy the house and you don't want them to be the neighbours from hell. Just make sure you are satisfied with everything before making the decision to take it further.



Making an Offer
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This is one of the points at which it is different in Scotland so I will deal with that first.

You will need to have a solicitor to make an offer. You can also get them to put what's called a Note of Interest on any property you are interested in which means that you HAVE to be told of anything that happens ie if any other offers are put in, so that you will still have the chance to get in there if you want. If you want to put in an offer, the solicitor will do that for you and please note that at this point the sale will be LEGALLY BINDING and you can be sued if you try to pull out at this point. So, before putting your offer in you should contact your chosen mortgage provided and ask them to instruct a survey as if you do one after and it turns out to be sinking or worse, you still have to buy it at the agreed price whether it was disclosed or not. In Scotland, unless it a fixed price sale, the situation is an 'offers over' sitiuation.

You need to be careful here because a lot of the time property's sell for over the valuation price and the mortgage you get will be based on the valuation so you would have to make up any extra, which may not be possible if you had a small deposit to start with.

When your offer is accepted, you move on to the next stage.


Back to the other system. Here, you are able to make the offer yourself to the agent who is selling the house who will relay this to the seller to consider. Your offer does not have to come straight in at the asking price unless you really think its worth it or is a hotly contested property. You can start as low as you want but remember to be realistic. The seller may come back and accept straight away but more likely is that they will reject the first offer if below the asking price. It's then up to you to go as high as you think the property is worth or as much as you think will secure the sale for you.

Unlike in Scotland however, the sale is not binding at this point and will not be until you exchange contracts (more about this later) so if the seller gets an offer from someone else, they can decide to sell the house to them instead. This is known as 'gazumping'. There really is nothing that you can do about this except either up your offer or find another house.

It is worth noting here for the whole country that your offer can be made stronger by factors like not have another house to sell, or that if you do you have exchanged contacts (ie are in a legally binding contract), or have a quick move in date.

The Mortgage Application
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Once you have your offer accepted, you can then make your formal mortgage application. If you have not appointed a solicitor, you will need to have one for this part as the mortgage company need to know who it is to be able to transfer the mortgage funds. Make sure you get a FULL quotation from them and that the price they quote you will be the price you pay.

*****note that it is better to ensure that the solicitor you choose to represent you is on your mortgage providers recommended panel as this will save you money. This is because they can then use some of the legal work done by the solicitor for you rather than them pay another solicitor to do the same work and then pass the charge on to you! Most solicitors are on most panels, so don't worry TOO much about this point but it is worth checking.*******

The application itself is fairly straightforward, they will ask you details about your work, confirm your income, the house you are buying, direct debit details, etc. Most of this you will know when they ask you so no real need to worry about this bit.

The will at this point also talk to you about insurances. The types of insurances likely to come up are:-

Income Protection - designed to cover the monthly mortgage payment should be made redundant or off long term sick

Life Cover - An insurance designed to pay off the mortgage if you or your partner was to dye during the mortgage term.

Buildings & Contents Insurance - Insurance to cover the cost of repairing or rebuilding you home or replacing the contents within it.

*****note - It is more than likely that a condition of the mortgage will be that you have buildings insurance in place form EXCHANGE OF CONTRACTS and not the point you get the keys. This is because after you exchange, even if the house is burnt to the ground you still have to buy it ant the mortgage company will still need ot release the money to you so this is very important for both of you. It is your solicitors responsibility to check this with you but it's better you are aware of it at this point because if you don't take it out with the mortgage provider they will want to know who you ARE going to take it out with.**********

I could go into each of these insurances in detail but I don't think it is quite as relevant. Again, the advisor will have to be regulated under the FSA to sell insurance and you can request the "advised or non advised" routes the same way as the mortgage and they will be able to go into a lot more depth for you.

The application will have to go to the underwriters to get final authorisation and you will need to send in certain details for this. This can range from as little as identification (when the underwriting rules allow self certification of you income - i.e you don't need to prove your income) up to 3 months payslips and bank statements to prove to them you can afford it. A tip if you need to send these in is to try your best to keep your bank statements as CLEAN as possible by not going over an agreed overdraft or having anything bounce like cheques or direct debits.

While the survey will have likely been done in Scotland, this is the point it is instructed (or ordered) for other applications.

You have a few options on what kind of survey to instruct depending on how comfident you are about the state of the property. The cost of the survey will generally depend on the value of the property.

A basic survey (called a Valuation for Mortgage Purposes) where the point of the survey is just for the provider to establish the value and re-sale value and does not go into very much depth. Also, while a lot of companies will sent you this report with the offer letter, the don't have to, it is for their benefit only. It is the cheapest option however so if money is tight, it may be the best option.

Next, you can usually opt for a better survey where the surveyor will write a more in depth report to which you will get a copy. This sometimes also included a years warrantee on the property so that if anything goes wrong they will pay to get it fixed. There are exclusions to this so again, make sure you check what these would be before opting for it.

You can also get a full structural survey done on the property if you think that there is something that needs checked and don't want to risk it. Now while these are expensive (can run into the thousands) they could save you a lot of money in the long run if they turn up something seriously wrong. The provider will give you a list of surveyors in the area they will accept a survey from so you can still shop around for the best deal.




Exchange of Contracts/Signing of the Missives
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These are both essentially the same thing except that where in Scotland you are already legally bound to the sale, the exchange of contracts in England Wales and N Ireland is the point at which this happens. You will have received an official offer of loan from your provider which details the mortgage you are taking which your solicitor will go through with you to explain all the fine print.

Once this is signed and returned, and everyone is satisfied, the solicitor will arrange for you to sign all the relevant papers for the exchange, carry out the required legal work and everything is pretty much ready to go!


The Big Day
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After ALL the stuff above has been done, the solicitor will organise with the rest of your chain (your buyer and the person you are buying from) for everything to go through on the same day. This will mean that you will buy and sell at the same time (known as simultaneous completion) and you can move in. It is a VERY good idea to get everything properly prepared for this day which you will be told in advance. Make sure your removals firm is booked, you have time off work, and you will be fully packed as if you can't move your stuff this can cause problems!!

Other than that, you will now be the proud owner of a new home!

Sometimes things can go wrong and you are not able to complete the sale at the same time (i.e your buyer pulled out and you won't have sold your house) but if this happens your solicitor should be able to advise the best course of action. It is very difficult to explain what happens here as each situation is different. All I can say is that although it does happen, it is quite rare. I have had only a handful of customers in this situation in my time as a mortgage advisor out of literally thousands of customers who had no problem.


Now, I know this review may make the process look very complicated but thats only because I have tried to talk about EVERYTHING that it involves. Your mortgage advisor should be fully trained to help you every step of the way and do not feel scared to contact them and NEVER feel like you are bothering them, it's their job and they are there to help you.


I hope this review is of help to people whether they are looking to buy their first home or a second or subsequent one and if you have ANY questions, please get in contact with me.

Thanks for reading and if I've missed anything please let me know!

drew

Summary: A step by step guide through the maze of buying property.