The process of home-buying is widely seen as being very complex, involving as it does considerable legal and financial arrangements, not to mention the more difficult part of actually choosing the right home to buy.
For a lucky few, the process of buying a property is made simple by family savings, which can provide the necessary financial investment to complete the purchase, but for everyone else, buying a house will inevitably involve a mortgage application process.
Mortgages are loans given by banks and building societies that are secured against a piece of land or a property. The mortgage company (mortgagor) lends the money to the borrower (the mortgagee), and this money is used to buy the property.
Although the borrower becomes the property owner, the mortgagor retains a ‘charge’ over the property, such that if it is sold, the mortgagor is entitled to be paid first from the proceeds.
Things to consider before starting a mortgage application process
The first matter to consider once you have identified a home you wish to buy is the state of your finances and particularly the level of borrowing you believe you have available to you. The maximum amount you can borrow under a mortgage is based on your income, the value of the property and the value of any savings you are able to offer as a deposit.
It is typical for mortgage companies to require a deposit equivalent to 15% or 20% of the value of the property. After that the maximum you would be able to borrow is usually four times your annual income, or your joint annual income if you are buying the property with your partner.
An additional consideration is the cost of the services required to complete a house purchase. These include solicitors’ fees, the cost of arranging a mortgage (usually up to £1000 or more), stamp duty (on properties over £250,000) and moving costs.
Perhaps the central most important consideration that is left is the cost of your mortgage. You will usually either pay the mortgage ‘interest only’, or you pay the interest plus a repayment on the loan itself. This will be divided over the lifetime of the mortgage, usually thirty years, and divided again into monthly installments. You should ensure that the cost of your mortgage is comfortably within your earnings capacity.
The application process
Once you have done your homework, you are probably ready to find a provider and make your application. Mortgages are serious financial commitments, so most consumers shop around. Mortgage brokers are often a good way to obtain advice on the current market, and they will usually have a good idea of the best deals, and the best options to suit your circumstances.
Once you have chosen your preferred provider you will usually need to complete a lengthy application form. Usually this will follow a consultation with a mortgage expert. The application will include lots of personal information, details of earnings and employment, and details about the mortgage you are seeking.
After completing this process, you must wait to see if your application is successful. If it is, the next step will be for the mortgage company to value the property you are considering purchasing, and finally the mortgage company will make an offer.
In the meantime, you will have appointed a solicitor to act on your behalf during the property transaction process. Your solicitor will ensure the legal aspects of the transaction are watertight, and it is only at this point that the mortgage application can complete.
At this stage you will have completed the vast majority of the transaction process, and all that will remain is to complete on the property, and to move in. Throughout this time your solicitor and mortgage provider will be sources of information for you, able to deal with any queries you have and to allay any fears or worries.