FIRST TIME BUYERS GUIDE
We at Sort Now Financial are here to help & advise, that is our business after all. However we have written this guide to help you strengthen you understanding of the issues & processes of buying your first home.
Perhaps this guide will answer some niggling doubts or address a host of questions you may have. We hope it will give you useful knowledge & hopefully give you more confidence in what to do next. So, read on ……..
WHAT IS A MORTGAGE THEN ?
The dull legal bit. A mortgage is the legal document/instrument by which a loan is secured against a property. The mortgage document records a lender’s or other party’s contractual rights to the title of a property if the conditions of the loan are not met.
This contractual right is generally referred to as the lenders security. Please remember it is the lenders security, not yours. If you get into financial difficulties & cannot make the payments the lender has the right to repossess your home & sell it for whatever they can get for it.
THE BUYING PROCESS
Now putting aside how much you can borrow & afford. The steps are:
– Get a Decision in Principle (DIP). This is basically a credit check with some bells & whistles. Armed with DIP you can then shop with a degree of confidence. There is also a stress & confidence aspect. Please remember you will want to negotiate to get the best price so get yourself into a position of strength.
– Appoint a solicitor to act on your behalf. Ask friends & family for recommendations or simply give us a call. When you are asking for a quote, please ask the to quote total costs including searches etc. Also, it is best you check with your broker to ensure the solicitor you wish is on the lenders approved list.
– Get excited & go look for the property that ticks all the boxes for you. When you find it, check with your broker to ensure the property type, style, age, condition & construction fit with the lenders criteria.
– Make an offer to the property seller (vendor), usually this will be via the estate agent.
Important Point: the offer must be “conditional” subject to survey & contract. Your offer is the basis of
a contract & at this stage it must not be legally binding. Once you conditional offer has been accepted
let your solicitor & broker know.
– Time for the actual mortgage application. Now if you have used a broker it is likely that you have a lender in mind that suits your individual needs & hopefully have an accepted DIP already. The lender will likely ask for proof of your income, be it wage slip, or accounts of self-employed, they may also need bank statements or employers references.
– In Scotland most properties are offered for sale with a home-buyers report already carried out & paid for by the vendor. The lender will ask for a copy of this but please note it must be in date otherwise a “re-fresh” will be required.
The value of a property will be affected by a mix of many different factors. These will include its size, location, type, state of repair, local environment, assessment of how easily it would be to re-sell in the future, and prevailing market conditions.
– The Mortgage Officer or Offer od Advance. You are almost there! This is the a formal “offer” by a lender stating the terms under which it agrees to lend the money.
Certain conditions may apply so it is essential that you read this document very carefully.
Example, if specific work is needed on the property the lender may:
a) Offer to provide the full amount of the mortgage when you buy the property as long as you carry out
b) Offer only part of the loan at first, paying the rest when the work has been carried out, this is
called a “retention”.
HELP TO BUY
SO WHAT IS HELP TO BUY?
Help to buy is a Government-backed scheme which helps first time buyers and existing home owners purchase a home with as little as 5% deposit. There are two ways to purchase a property with Help to Buy – either with an ‘Equity Loan’ or ‘Mortgage Guarantee’.
HELP TO BUY (EQUITY LOAN)
– Available on new build homes up to £600,000 in England, £400,000 in Scotland and £300,000 in Wales.
– The Government will lend you up to 20% of the property value through an equity loan which can be repaid at any time during the loan term or on the sale of your home.
– In England and Wales, you won’t be charged any loan fees for the first 5 years of owning your home. In Scotland, there are no loan fees to be paid.
– You’ll only need to secure up to 75% mortgage from a bank or building society.
– There is a range of competitive mortgage rates available with this scheme.
HELP TO BUY (MORTGAGE GUARANTEE)
– Available on new build homes and existing homes up to £600,000 in England , Scotland and Wales.
– You’ll need to secure up to a 95% mortgage from a participating mortgage lender.
– The lender can now offer this loan-to-value mortgage as the Government will provide them with a guarantee of up to 15% of the property value.
THE KEY DIFFERENCE BETWEEN EQUITY LOAN AND MORTGAGE GUARANTEE SCHEMES:
EQUITY LOAN MORTGAGE GUARANTEE
Type of home New-build only New & 2nd hand homes
Mortgage required 75% 95%
Government loan up to 20% –
Maximum purchase price £400,000 £600,000
WITH HELP TO BUY EQUITY LOAN, BUYERS ONLY NEED UP TO A 75% MORTGAGE, BUT WITH HELP TO BUY MORTGAGE GUARANTEE, BUYERS WILL NEED UP TO A 95% MORTGAGE. THIS HAS A SIGNIFICANT IMPACT OF THE AVAILABILITY OF MORTGAGE PRODUCTS & THE RATES OFFERED BY THE LENDERS.
If you want to go ahead and get the mortgage, you must accept the offer.
The legal work then needs to be completed.
– The Legal Work (Conveyancing) this is the legal process that must be followed to transfer the ownership of the property to you.
a) Get the title deeds of the property from the seller’s conveyancer and examine them to make sure
there are no problems.
b) Make sure that you will get proper ownership of (title to) the property.
c) Make sure that there are no planning conditions or particularly harsh conditions of ownership (for
example an intrusive right of way) affecting the property.
d) Make sure the seller has all planning permission and completion certificates for any alterations or
extensions to the property.
e) Check that there are no local developments (for example, road-widening schemes) planned which might
affect the value of the property.
f) Check that the street, pavement and main drains are public and maintained by the local authority.
g) Negotiate and agree (with the seller’s conveyancer) the draft of the contract of sale “missives”,
setting out the terms on which you are buying.
h) Register or record the change of title to the property, and standard security, in favour of the
lender, with the Land Registry.
Once the conveyancing work has been completed, you and the seller need to sign the missives your conveyancers have agreed. The conveyancers will then conclude missives, at this point both you and the seller are legally committed to the deal. Also, you may become responsible for putting right any loss of or damage to the property (unless the contract says otherwise).
– GET THE KEYS.
Yes, that’s it, you become a home owner on the agreed completion date.