Taking the mystery out of your mortgage application

Buying your first home could be the most confusing, stressful and exciting financial transaction you will ever undertake.  Even for people who have bought several homes, the mortgage process may still be somewhat intimidating.  However, this can be broken down into several simple steps.  This can help make the process less overwhelming.  Once you understand these steps, much of the stress may be avoided.

The four basic steps are:

Application

As a home buyer, you must complete an application form to initiate the mortgage process.  During this phase, pending on the type of product you choose, you will provide documentation on things such as current income, bank accounts and long term debt (credit cards, car loans etc.).  Some lenders may then also require an application fee. 

Once the application is complete, the lender can begin the next step of the process, which is processing and reviewing your information.

Processing

An appraisal of the home and credit report is required. Employment and also assets are also verified.  The lender will then provide you with specific information surrounding your loan including an estimate of your completion fees.

Approval

At this stage the lender evaluates the application, along with supporting documentation and approves the loan amount.  Once the loan is approved, the homebuyer meets with the solicitor involved to finalise the transaction and sign any necessary paperwork.  This is commonly known as completion.

Completion

At this stage the lender disburses the funds to the solicitor to complete the transaction.  Subsequently, on completion of sale the title is transferred to you the buyer.

It is worth noting that in order to make the mortgage application process go smoothly, that you prepare ahead of time.  Your lender is going to ask for a lot of information about your personal finances.  This will include bank account numbers and balances and any outstanding debt such as credit card or car payments.  It is important that all this information is complete and accurate.  That way it allows for the verification of your application and approval of your loan as quickly as possible.  It is therefore to your benefit to gather this information before meeting a lender.

How Much Can I Borrow?

Generally most lenders work on a multiple of your gross annual income if you are employed.  Typically you should be able burrow around 3.5 times of your single income or 3 times joint incomes. Some lenders will lend over this figure.  If you receive regular extra payments, such as overtime and this can be proved, most lenders will include it in their calculations.

Self Employed

In this case, it is the net profit figure which the lender takes into the consideration.  Many lenders will insist on seeing you last two years accounts and will take the average net profit during that period, whilst others will take the last years figure, if it is an improvement of the previous year.

Income deduction

Lenders will deduct your regular commitments, such as loan, credit card and hire purchase payments from your salary before applying their income multiples. 

Deposit

Many lenders require a deposit of between 5% and 10% of the purchase price.  Although it is possible to arrange a 100% mortgage there are fewer lenders to choose from.

Credit Scoring

Although there are exceptions, most lenders will credit to help them assess the potential risk of lending you money.  They will ask personal questions such as how long you have lived at your current address, how many addresses you have had in the past three years, whether you are on the electoral roll, how long you have held your bank account, how many children you have etc.  As such, the answers to these questions gain points and the more points you have the greater the chances of you getting a mortgage.

Why an Independent Financial Adviser?

Searching for a mortgage to suite your needs can be very time consuming and confusing.  In particular, if your case is a little out of the ordinary.  An adviser will give advice on how much you can afford to burrow, both up front and monthly, the total costs and will be able to find you the most appropriate mortgage, dependent on your circumstances.

The lowest interest rate is not necessarily the best deal. This depends on many other factors such as penalties, whether you want a fixed or variable rate and how long you want the deal to last.  Such a person should be able to explain the terms of the mortgage on offer in a clear manner and give you a report outlining the reason for the recommendation.

The Legal Process in Purchasing Your Home

Conveyancing

The law requires that this is dealt with by a qualified solicitor.  Once you have exchanged contracts you and the seller are legally bound to complete the purchase of the property on the agreed date.
Therefore, from a legal point of view, the important stage is before contracts are exchanged.
The lawyer will carry out checks to make sure that it is safe for you to go ahead with the purchase of the property

Title

The lawyer will check the legal title to the property.  This is to ensure that the property has all necessary rights of access and it is not subject to any conditions which should restrict your use of the property.

Searches

This will include local authority search to reveal whether the property is subject to any panning restrictions or road proposals which might affect it in future.

The lawyer will check with the other parties? lawyer, and ask any questions you may have.  If the property you are buying is leasehold, the lawyer will need to make enquiries concerning the management of the building and likely service charges.

Such searches and enquiries will usually take between two and four weeks to complete depending on how quickly the local authority deals with the search and also how fast the seller lawyers replies to the enquiries.

When such checks have been completed by the lawyer and on receipt of a copy of your mortgage offer from the lender, you will then receive a full report of the property.  At this stage the lawyer will also arrange for you to sign the contract and ask you to provide the deposit.

Exchange of Contracts

This takes place when both the lawyer and the seller are ready to proceed and have agreed a date for completion.  The second phase of the legal work comes between exchange of contracts and completion, usually between 14 and 28 days.  During this period, the lawyer will carry out further searches, arrange for the signature of relevant documents, and will also report the lender and request the release of mortgage monies.

Completion

The lawyer will transfer the purchase monies to the seller?s layer and in return, get the title documents which, once registered at the Land Registry, will be your proof of ownership.

The lawyer is there to help you through the process and will liaise with you at various times throughout the transaction and let you know what stage has been reached and advice on the time scale so that you can plan accordingly.

On completion the property becomes yours.