Before You Look For A Property:
The first thing to consider when thinking of purchasing a home is how much you can afford. Why not try our mortgage calculator to give you an idea?
It is wise to check how much you can borrow before going out to look for properties. This saves any disappointment of finding the house you want and it being outside your budget.
There are many mortgage lenders active in the market and each one will assess the amount you can borrow differently.
Personal borrowers tend to fall into two categories, in terms of mortgage lending. These are:
- First Time Buyers
- Second / Subsequent Buyers
For all categories of borrower, the mortgage lender will assess your income, expenditure and credit history in order to make any offer of mortgage.
How much you can borrow depends on a number of factors. Some of these are as follows:
- Whether you are buying a property on your own or with others
- The level(s) of your income
- Whether you have any other debts
- Your credit history
- How long you require the mortgage for
Most mortgage lenders base the amount you can borrow on affordability and as a guide they look at multiples of your gross income (before any deductions or tax have been taken off).
Single people may be offered 3 or 4 or even 5 times their income although some are known to offer 6 and 10 times income, if you can prove that you can afford it. This can be dangerous if borrowers become overstretched and interest rates rise, thereby increasing payments.
If you are borrowing jointly then this is also usually based on income multiples. It could be 3.5 times the highest income plus 1 times the other. Or, you might be offered 3.5 or 5 times your joint income.
Obviously, all mortgage offers are likely to be different and will totally depend on your financial circumstances.
2. Looking for or searching for property
As most people know, Estate Agents carry details of the majority of properties for sale. Solicitors do this in Scotland. This can be through their offices, web sites and in the local newspapers. However, there is a fairly substantial charge involved if they sell your house and some people choose not to go through an Estate Agent.
People that are convinced their house will sell quickly may choose to sell privately, without the use of an Estate Agent. This can save the selling fees but will mean that they have to show the house themselves to potential buyers and undertake virtually the same tasks as the Estate Agent would have.
Properties are also available at auctions.
Looking for a property to buy can be a long and drawn out process, especially if you want to live in a particular type of house in a particular area. However, once you have found the one you want you will need to make an offer to buy it.
If your offer is refused because it is lower than the asking price, increase your offer in stages or tell the Estate Agent the maximum you can afford. Not having your offer accepted can be disappointing but other properties will come along and you might be happier in the long run. If you really want a particular property, only offer what you can realistically afford.
In England and Wales you are not bound by your offer and can pull out at any time before contracts are exchanged on the property. If you do pull out you are likely to lose some or all of the fees you have paid to your mortgage lender and/or Solicitor. You should therefore be very certain that you want to proceed.
In Scotland the law is slightly different and buyers enter into a binding contract when they make an offer to purchase a property. Certain conditions can be placed on the offer but generally the offer is binding on both parties.
3. Buying a House - Getting Started Checklist
In terms of a checklist, the following should help you get started:
- Look at your budget and set a housing price range that you can realistically afford.
- You need to consider that the cost of borrowing is cheaper when interest rates are low.
- Check that you would be able to afford the same property if interest rates were higher.
- If you have a mortgaged property to sell, as well as a new one to buy, check whether the property you are selling will give you a shortfall or surplus amount.
- After assessing your budget and the price you can realistically afford,
- Check whether you can afford a deposit for your new house. Some mortgage lenders offer 100% mortgages but you are likely to get better interest rates if you can put at least a 5% deposit down. In general terms, the larger the deposit, the better the interest rates available.
- As well as the deposit issue, you need to consider whether you will have enough money to cover the associated costs of buying and selling homes. These are detailed later but include fees for Solicitors, valuations of your property, surveys and also any application charges for your mortgage.
4. Making Your Offer To Buy A Property
If the person selling the house is using an Estate Agent you will be expected to make a formal offer through them. The Estate Agent will then act as a middle-man between you and the vendor in any negotiations. At this point you can also ask about extra items to be left in the house such as carpets and curtains and whether you will need to pay extra for them.
If the vendor accepts your offer the Estate Agent will write to you with confirmation and you will need to appoint a Solicitor to get the buying process moving. This is known as the conveyancing. Most people do appoint Solicitors to undertake the conveyancing work on their behalf. You do have to pay for it, but by doing so it can mean the property is yours in a fairly short period of time.
If you do not want to appoint a Solicitor you can do the conveyancing work yourself as it is a fairly set and standard process. It involves liaising with your future mortgage lender and making sure searches are done on the new property. You would also have to deal with the vendor's Solicitor for matters concerning the new property.
Once your Solicitor has been appointed, he or she will start the conveyancing process and you should agree a preliminary date when you would like to move into the property.
Once your Solicitor has completed the conveyancing process you will be able to 'exchange contracts'.
As soon as contracts have been exchanged your Solicitor will make sure everything is ready for you to own the new property from the completion date. Exchange of contracts and completion can take place on the same day if you are in a particular hurry to move.
If you are taking on a mortgage to purchase the property, the mortgage deed will be ready for you to sign at your Solicitors on the completion date and he or she will talk you through the document. This will allow the lender to release the funds in order to purchase the property.
If there is a sale and purchase going through at the same time the Solicitor will arrange for any surplus of sale monies over mortgage needed to be returned to you. They will deduct their fees and any other due charges first. This can include their legal fees and the stamp duty payment.
If there are no surplus monies available your solicitor will send you a bill for the work and fees due. You will have a certain amount of time to settle the bill.
The final part of the process is for your solicitor to confirm the money to purchase the property has been received and to hand over the keys. The property is now yours.