In the following article we (AHW) have tried to highlight all the important points which need to be considered when applying for a mortgage.
What is a mortgage?
The mortgage is a loan obtained in order to afford a purchase of real estate. Most banks and real estate companies, as well as specialized mortgage companies, provide mortgage loans.
How much can I borrow?
Residents of Great Britain can get up to 100 percent (and sometimes even more) of the real estate cost, depending on their situation and other circumstances. But if you buy real estate for the first time, you will get 90 to 95 percent. At the time of purchase you will need to find a deposit amount to cover the difference between the purchase price and the mortgage.
Non-residents can earn 65 to 70% of the purchase price, depending on your usual residence.
Mortgage is a Pawnshop
In the case of obtaining a mortgage loan, it is real estate itself that serves as a "pledge" of the loan. This means that if you do not repay the loan amount, the lender has the right to take possession and sell the real estate property to recover its money. So, before resorting to the mortgage, you have to be sure that you are able to pay that money.
In deciding the mortgage
It is always helpful to consult a mortgage specialist to discuss the amount you can lend, if you do not know yet. This can help you get an idea of the building you can offer; of a region where he can be; total expenses for the purchase of the building.
Choice of building and your offer
If you have already chosen the building you wish to buy, you have to contact a real estate agent acting on behalf of the seller and make your offer to buy this property.
Choice of Lawyer
After accepting your offer to purchase the property, the real estate agent from the seller will need the information about your lawyer. Your lawyer deals with all the legal aspects of real estate purchase which include the establishment of conveyancing documents. You have to reimburse all the costs of the lawyer on which depends, in large part, the speed of establishment of the mortgage documents. The lawyers carry out the verification procedure with the local authorities, the land register, the bankruptcy register, etc., as well as the payment of all required stamp duties. The cost of legal services varies considerably, but on average it is between £ 700 and £ 2,000.
Mortgage Transaction
After your offer to purchase has been accepted, it is necessary to prepare a mortgage transaction. Your mortgage broker must ensure your income (recent payment orders, P60 and statements of account or accounting documents, in case of sole proprietorship). The estimation of the property is essential to confirm its structural solidity. Most lenders will also ask for an estimate of the property to decide if the property is likely to be pledged.
Exchange of Contracts
After your lawyer has done all the necessary investigations and the terms of the contract have been negotiated, it is time to exchange the contracts. As soon as each party has signed the contract and exchanged copies, the contracts come into effect. The contracts include the effective date, which is the date from which you become the owner of the property in question. During the exchange of the contracts must be paid any deposit requested and contracted insurance of the building to be insured from that moment. If you already have insurance, your insurer will exempt this new building from the insured amount until the effective date of the policy.
Completion of the Transaction
This is the moment when your lawyer has completed the purchase on your behalf and the building will belong to you. The deed of ownership, the document certifying that you are the owner, will then be sent to the appropriate register for the purpose of making the changes and registering you as a full owner.
Move
You are the owner of the building and can move there. You can contact a moving company to use the services of professional movers. Once you have moved to a new building, you will need to notify local authorities, official utility service providers, the tax authority and other services to be notified (telephone service, other service providers, non-creditors). paid, as well as parents and friends).
Fees required
Deposit
When exchanging contracts, you usually have to deposit a bond, which is settled by your lawyer. It is a percentage of the purchase price that the agent and the seller have traded, usually between 5% and 10%.
Estimate / Review
To verify that the real estate is an acceptable mortgage for granting the credit, a real estate expert from the mortgagee must inspect and estimate the immovable in question. The cost of this estimate, in case it is not free, depends on the building you have chosen.
Legal Fees
Usually, it is necessary to choose a lawyer or an approved specialist of the delivery of real estate property that will take care of the legal aspects of the purchase of your building. This entails expenses that can be assessed before resorting to a legal expert.
Information From the Local Authority
Your legal advisor should inquire about potential future land-use plans that may affect the cost and actual acquisition of the building you have chosen.
Land Registration
We check the legitimacy of the property and make the registration of the owner at this address.
Stamp Duty
It is a state tax based on the purchase value of real estate which is calculated as follows:
From £ 0 to £ 125,000 (in 2008 the ceiling was provisionally high up to £ 175,000) - nothing
from £ 125.001 (£ 175.001) to £ 250,000 - 1% of the acaht value
from £ 250,001 to £ 500,000 - 3% of the acaht value
£ 500.001 and over - 4% of the acaht value
Transaction Fees
Most creditors are charged a mortgage transaction fee. Some creditors allow this amount to be added to the mortgage amount while the rates differ according to a selected creditor and mortgage offer.
Mortgage Consultation Fees
You should be willing to pay a consulting fee to the professional mortgage advisor. You have to be sure he has access to the "whole market", that is, he is able to get the best mortgage creditor for you and the product you need. Not all counselors are paid the fee for such consultations.
Higher Credit Cost (previously known as the Mortgage Loss Benefit Guarantee).
It is an insurance policy intended to protect the mortgagee against the losses he will incur if he is forced to buy back the building because of mortgage arrears. This insurance is frequently applied in the case of granting large loans to estimate the mortgage property, provided that the cost of the building is slightly higher than the amount of the loan requested. These costs are usually borne by the borrower. However it must be remembered that it is an insurance of the creditor and not the borrower but still it is you who pay it.
Insurance
Creditors insist that the property be adequately insured by an appropriate insurance policy that covers current risks. In addition, you are obliged to have special insurance covering the risks of theft, fire, damage, etc. Another form of protection is the mortgage protection plan designed to provide protection against unemployment, illness and dismissal for job cuts.
Life Insurance
Some creditors require life insurance in order to be reimbursed for the loan in the event of your death. Usually, you must be covered by one of the following insurance plans:
Term Insurance : The most affordable and simple life insurance plan that only provides life insurance for a specified term. The insured amount is only compensated in the event of the death of the policyholder during this period. This insurance policy has no investment value.
Fixed Term Insurance : the policyholder does not change the insured amount during the policy's validity period. In general, these insurance policies are provided for the repayment of the loan after the death of the borrower (policyholder). Equivalent term insurance is most appropriate in the event that the principal of the loan is fixed and remains unchanged during this period. The life insurance policy can be individual or couple.
Term Decreasing Insurance : the insured amount decreases proportionally to the reduction of the refundable amount. This insurance plan generally applies for the protection of the interest-bearing mortgage loan, the balance of which is reduced each year.
Other Forms of Protection
You can also consider insurance against loss of work capacity following an illness or an accident or a fatal illness. These questions are to be discussed with your mortgage adviser.
Types of Mortgage Credit
Fixed Interest Mortgage
If you have chosen the fixed interest mortgage, the amount of the monthly payments will not change during the fixed interest period , regardless of any interest rate fluctuations in the market. This can be important for you in case of limited budget because you are protected against rising interest rates. However, if the interest rate falls below the set amount you will have to pay again. Since the fixed interest period is over, the mortgage credit is generally transferred at a variable interest rate.
Interest-Limit Mortgage
In interest-limited mortgages there is a maximum of interest for the duration concerned . The interest you pay can not exceed an agreed amount, so you know the maximum monthly amount to pay. The advantage of this type of credit is that in case the basic interest rate falls below the floor, the amount to be paid will also be reduced.
Discounted Mortgage
The discounted interest mortgage means the reduction of payments during the relevant period. The creditor grants a real discount of the variable rate. Assume that the variable rate is 5% with a discount of 1%, the interest payable will be 4%. If the variable rate on which your discount depends depends, the amount of your payments will also be reduced. Nevertheless, if the creditor's standard variable rate rises, you will have to pay more. Although the discounted rate may initially be advantageous, it is better to think about how much you will have to pay after the end of the discount period.
100% Mortgage
When using the 100% mortgage, you borrow 100% of the real estate value, ie you do not have to pay any down payment. Interest rates can be fixed, variable, discounted or fixed. Using a 100% mortgage means you risk losing money if real estate prices go down. You can also set an interest above the average and the amount of credit higher.
Mortgage Without Full Evidence
The mortgage without full credentials is available to all borrowers and is primarily used by contact and independent workers. In this case the creditor will inquire about the details of the borrower's income but he will not require to provide supporting documentation of the total income. Other conditions will depend on the creditor's current requirements and prevailing market rates.
Floating Interest Mortgage
In the case of a floating interest mortgage the amount paid increases or decreases with interest rate fluctuations. This means that you can not predict monthly payments of credit which may cause financial problems during the term of the mortgage.
Mortgage "buy to lease"
The "buy to lease" mortgage is granted for the purpose of buying real estate to invest in the private lease sector . It is possible to estimate your chances of obtaining the credit based on the forecast of income and / or income, according to a personal policy of the creditor.
Mortgage "leasing to buy"
This model allows you to buy a new building by leasing the old one until the rental income from your old building allows you to pay the mortgage . Creditors granting this type of mortgage give you the credit normally on the new building taking into account your normal income, even if you already own property. Then you get two mortgages at the standard rates of the owner living in his building, thus avoiding a more expensive mortgage type "buy to lease".
For the "lease to buy" type you will only need 5 to 10 percent discount. That's a lot less than 20 percent needed for the "buy to lease" mortgage type which is already a good reason for choosing this mortgage model.
Right to the Mortgage
Tenants domiciled in social housing and wanting to buy real estate have the right to use mortgage credit . People who now rent the building belonging to the municipal council, an association of real estate owners (but not charitable) or the trust are considered "social tenants". Most of the real estate purchased under the right to purchase mortgage credit are social housing.
Current Account and Mortgage "with report"
The mortgage based on the current account allows you to manage the mortgage from your current account. This mode allows you to reserve interest while your normal income inflow will change the account balance. The creditor may ask you to pay your salary to the account. Mortgage with Deferral provides you with the ability to independently manage different accounts, for example, mortgage, savings, current account, etc., but all balances will be reported against each other, leaving the possibility reduce the interest payable and, therefore, the mortgage can be prepaid.
Mortgage at Base Rate
The Bank of England's fixed rate mortgage may be issued for a specified period or for the entire term of the loan. The amount paid varies according to the fluctuations of the Bank of England's key interest rate.
Mortgage with Repayment of Cash
The mortgage with cash repayment provides cash back after completion of the purchase. This amount is a percentage of the down payment or a fixed amount. This cash refund can help you cover some of the building's development expenses, however this rebate is often subject to high refund rates and may include prepayment penalties.
Flexible Mortgage
An essential feature of flexible mortgage is the ability to make additional payments when you have extra finances. This type of mortgage also makes it possible to reduce monthly payments and even postponement of payments, although excessive reserve payments must be made before the conclusion of this agreement. This type of mortgage is usually granted at the base of the daily rate. The flexible mortgage usually provides for the possibility of a discount which allows to lend additional finance at a pre-fixed rate.
Jurists
Your lawyer plays a leading role in the purchase of your new home. These obligations were considered above when describing the Procurement Process.
Estimate
By buying a property it is important to have a real estate expert opinion on the general condition of the building. The qualified real estate expert can reveal any defect or weak point of your potential purchase during the estimate. This estimate is essential for a few reasons. In particular, it is necessary to establish the cost of the real estate so that the creditor, in case of possible default of payment, has the possibility of selling the real estate, if necessary, and thus repay the amount lent to the buyer. The estimate is also necessary for the insurance, that is, for the cost of repairing the building or restoring it until restoration after a disaster or demolition.
There are three main types of Estimations:
General Estimate
This is only an estimate for mortgage purposes. It represents a restricted report to deliver to construction companies, banks and other creditors before the authorization of the mortgage loan. The report helps to inform creditors about real estate costs. Although the real estate expert is a qualified specialist who examines the building, this examination is not meticulous it can reveal only essential flaws. The expert does not examine basements, attics, roofs and other premises with difficult access. The appearance of the building and the roof are examined from the ground.
Remember, however, that the estimate for mortgage purposes is based on a limited review in order to fulfill the conditions of the credit institutions. This is not a complete review for estimation purposes.
Warning !
Sellers are not obliged to inform you of the vices present in the building, even if they know for themselves.
The examination during the purchase of the building is more meticulous than a General Estimate and focused on defects and problems of an urgent or serious nature.
Examination during the purchase of the building.
The Homebuyer Survey and Valuation (HSV), also known as a Buyer's Report of the building, is an estimate made in accordance with the standard established by Royal Institution of Chartered Surveyors (RICS). This is the most recommended variant for ordinary real estate, built for about 150 years and is in satisfactory condition.
This review is not focused on the building itself but on issues that require urgent resolution. It is not very suitable for buildings requiring repairs, or in case you intend to completely rebuild your home.
HSV includes the following:
• General condition of the building
• All essential vices in the accessible parts of the building that can influence its price
• Any urgent issues that require expert review before signing the contract
• Wall moisture test results
• Damage to wood, including bores or mildew
• State of protection against moisture, isolation and drainage (although the drainage system is not tested)
• Evaluation of the cost of rebuilding the building after a possible fire for building insurance purposes
• Price of the building on the open market
• Roof and attic, ceilings, interior walls, floors, fireplaces, pipes, interior decorations
• Amenities: electricity, gas, water, central heating and draining
• Outside: gardens, enclosures and garages, security, location and neighborhood
The report includes a section dedicated to the problems that your lawyer needs to know.
In the report the specialist confirms the market value of the building and assesses the cost of its restoration, as well as the amount insured.
In summary, the report includes details of essential and urgent defects and presents the security, location and neighborhood advisory that may influence your decision to purchase the building.
The construction estimate is a most comprehensive form of real estate valuation, but also the most expensive. It aims to reveal any aspect of the house that may mean the need for repairs or diminish the value of the building; If the expert has not noticed a problem that has been revealed later, you are entitled to claim compensation.
Construction Estimate
The construction estimate is a meticulous examination of real estate. It is suitable for any building, including:
• Buildings on the list of classified sites,
• Old buildings,
• Buildings representing an unusual construction, regardless of their age
• Building that you intend to plan renew or rebuild
• Building having undergone a considerable reconstruction
The expert examines all accessible parts of the building. In addition, you can ask to include some areas in this review, so you can clear up all your fears about the building.
The construction review includes details of the following:
• Essential and secondary defects and their possible effects
• Possible cost of rehabilitation
• Wall moisture test results
• Damage to wood, including bores or mildew
• State of protection against moisture, isolation and drainage (although the drainage system is not tested)
• Technical information on the construction of the building and the materials used
• Location
• Recommendation on the subsequent special examination.
The building estimate is more expensive because the expert examines all accessible parts of the building. This form of examination is suitable for all types of housing but it is especially recommended for the estimation of buildings built before 1920, and in case of considerable reconstruction or conversion of the building.
In many respects, it is done on the same model as the Examination when purchasing the building with regard to main elements, but in addition it presents a more detailed explanation of the construction as well as advice on defects and possible means of their elimination.
New Buildings
A building less than 10 years old may be subject to the National Housing Council (NHBC) program or other similar guarantees. The guarantee is transferred to a new owner and covers only a few defects that appeared after the sale of the house.
AHW