guide: first time buyer

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1 guide: first time buyer Buying your first property can be a scary task but an exciting one! With the right knowledge and advice you can make the process as stress free as possible. We have asked our mortgage team to put together a handy guide to help explain the processes involved in buying a property for the first time.

2 guide: first time buyer The word mortgage is a French legal term meaning Death Pledge, but it s not as scary as it sounds! A mortgage is simply the act of borrowing money against an asset, most commonly a property. The idea is a lender can feel comfortable to lend what is typically a large sum of money as they will have the right to sell the property if you do not follow the terms in the agreement; this is known as security. Because they have this security there is less risk associated to lending the money so the interest rates can be more favourable. When purchasing your home there is a process which is best practice to follow, we will go into each part in more detail throughout this guide: affordability decision in principle house hunting full submission exchange / completion mortgage offer valuation / survey

3 affordability The first step all home buyers take is to check their Affordability, in simple terms this is working out how much money you can borrow by way of a mortgage. Each lender has a completely different approach to working out what the maximum mortgage amount they will lend you. Your Mortgage Adviser will help guide you through this maze accurately but as a general rule of thumb and a good calculation to work from Take your income let s say 25,000 add your partners income 15,000 = 40,000 and multiply by 4 = maximum mortgage amount of 160,000 (this is an example and some lenders may be prepared to consider more) hint - Please visit our website at where we have an affodability calculator which will help give you an idea of what may be possible. This is to be used a guide and your adviser will be able give you a more accurate figure. Now if you have any credit cards or loans these will need to be taken into consideration as well. Lenders are more interested in your monthly spending than your balances. For example if you have a personal loan of 5,000 which you are spending 200 a month on you would need to take the monthly payments and multiply this by a year s worth of payments 200 x 12 = 2,400. Take this income from your total joint income as above = 37,600 again multiply by 4 and your new maximum mortgage = 150,400. When taking credit cards into consideration lenders have different criteria s, some will take 5% or 3% of your balance others will take your current minimum payment but again your adviser will guide you through this. Please note this is just to be taken in general, some lenders will give you more and some will give you less and this would all be worked out accurately for you by your Adviser. The maximum mortgage a lender will give you and what you can really afford are usually two different things, over and above these calculations you still have to pay Council Tax, Utility Bills, TV Licence etc so it s always best to write down everything you expect to spend each month on the necessities and then set yourself a monthly budget for the mortgage, life assurance & buildings and contents cover. Remember that you still need to live your life! Budget for holidays, hobbies and fun, you want be able to enjoy your new property not be imprisoned by it granted this is easier said than done with house prices being the way they are but start of on the right foot and keep your expectations reasonable.

4 hint - Credit helps credit! It may sound crazy but having debt means you are seen as a better potential customer to mortgage lenders. Bear in mind this debt needs to be kept in good order and not excessive. If you have zero debt and considering going for a mortgage it could be wise to take out a credit card, spend a tiny amount of money that you could easily clear at any time and then set up a direct debit to pay the minimum payment each month. Paying something monthly shows lenders that you are responsible and can be trusted to make payments on a monthly basis. decision in principle You have worked out how much you can afford and you know how much of a deposit you can put together now is the time to see if your dreams can become a reality. At the DIP stage your adviser would have looked at all your needs, wants and circumstances and have a good idea about what direction you will be taking. The DIP is not legally binding by any means and is just to be used as a process to let you know if any mortgage lenders would be happy to lend you money. hint - Payday Loans! Unfortunately it s not uncommon for most people at some point to be strapped for cash but please do your very very best to avoid payday loan companies. Mortgage lenders are increasingly on the lookout for people who have borrowed money from payday lenders as it gives the impression that you cannot manage your money effectively. Some mortgage lenders will refuse to even consider your application if you have taken a payday loan in the last 12 months! hint - Voters Roll! It s a fact that not everyone votes, some people point blank refuse to ever vote, but please don t let your political view point hinder your mortgage application. It is actually a legal requirement to be on the Electoral Role so it s best to make sure you are on there so you don t get in trouble for one! Also lenders use this information to check you are who you say you are and you live where you say you live, and not being on the Electoral Role raises suspicions for mortgage lenders. This can potentially hinder the chances that they will lend you money. They will check with credit referencing agencies such as Experian and Equifax to see if you have any negative credit history. It is always best to be completely upfront and honest with your mortgage adviser as even if you do have anything like a county court judgement or have missed payments on credit cards there are still specialist lenders that may be able to help. You may have heard that having lots of credit searches done against you is bad for your credit score this is in some part very true. If you have applied for 5 personal loans in a short space of time it would appear to future lenders that you are credit hungry and not in a good financial place. In most cases with decision in principles the lender will only conduct what is called a soft search this means that the only people that will see this search has ever been done is you and the lender who completed the search, meaning it has no negative affect on your credit score. This is because mortgage lenders know that you are likely to have decision in principles with a number of different lenders and also this is seen as you dipping in your proverbial toe and it is not an out and out application to borrow money. Once your DIP has been accepted most lenders will provide you with a document, if they don t offer this service your adviser will be able to confirm in writing for you. A DIP is an indication that they will be happy to lend you money provided information that has been given can be confirmed and that the property you intend to purchase is suitable. It is not a promise of a mortgage, but a good indication that they will be happy to consider the application as favourable. Your adviser will put a limited amount of your information to the chosen lender for them to assess your circumstances and make sure you are worthy of their money.

5 house hunting Now the fun bit! You know how much you can afford, you have a decision in principle certificate in hand and it s time to start the search for your perfect first home. The internet has made house hunting so much simpler and with websites such as Rightmove, Zoopla and Property Finder as good as every property that is currently on the market can be found there. If you own a smart phone its worth downloading their apps as it makes browsing for homes very easy. Once you have found a property you like and wish to put an offer in always let the estate agent know you have a decision in principle already and your mortgage is lined up. This puts you in a much stronger position than other perspective buyers and gives you a fighting chance with your negotiations. full submission Congratulations! You ve had an offer accepted on your first property and are now ready for your mortgage application to get underway. Your adviser will take the lead in this process and will act as a middleman between you and the mortgage lender saving you the time and hassle of dealing with them as well as using their expert knowledge and relationships to speed things along.. hint - Estate Agents own advisers! Estate Agents will try to sell you all their services as they will ultimately make more money by doing so. It is illegal for an Estate Agent to insinuate that you have a better chance of getting the property if you use their Mortgage Adviser or their Conveyancers so if you are ever put under any pressure let them know you understand the law! This sales tactic has been well documented by the press and BBC Panorama and is more common with big corporate chains. Always remember it is illegal for an Estate Agent not to pass any offer you make to the seller so don t let anyone tell you different. During this stage you are pretty much proving everything you said in the decision in principle stage is true. Lenders will expect you to prove who you are through ID verification, where you live via proof of address and will request you prove your income. Once they have all the information they need and are happy with everything they will instruct the valuation.

6 valuation / survey Making sure the property you are buying is up to scratch and isn t going to fall down any time soon should be treated as a priority, as getting it wrong could cost you a fortune. There are three types of survey you can choose between and each has a different level of service and a different price tag: standard valuation homebuyers report building survey If you are applying for a mortgage, you will have to pay for a mortgage valuation as a minimum requirement. This is not a survey as such. It is for the benefit of the lender, to judge whether the property has enough collateral for them to lend money against it. Although you will have to pay for the report, it is arranged by the lender, who retains legal ownership of the documentation. So should the valuer fail to spot a costly defect, you will have no claim against them. Can be purchased directly or though a lender as an add on to the valuation. This uses Rics (Royal Institution of Chartered Surveyors) standard wording to comment on the condition of the property. Since you are employing the surveyor directly, you can take legal action against them if they fail to spot a defect, or at least make a claim on the surveyor s public liability insurance. Surveyors are acutely aware of this possibility, of course. This is why their reports are full of caveats and exclusion clauses, such as, the xyz appear to be in good condition, and floor coverings and furniture have not been moved. Surveyors know that to be found guilty of negligence, it will have to be proved in court that the overlooked defect was clearly visible at the time of the inspection. They are unlikely to bring ladders to inspect the roof space. Neither will they lift manhole covers to inspect the drains, nor remove bath panels to check for plumbing leaks. They will state that they have not tested the heating or electrics, and recommend that other specialists are called in to do this. More in depth than a homebuyers report and a much more thorough investigation will take place. You should expect the surveyor or engineer to bring ladders and wear overalls. They should open manholes, remove bath panels and even lift carpets and floorboards (with the permission of the vendor). Because of the thorough nature of the report it is the survey of choice for those looking for peace of mind or have any worries about the property that they wish to know more about. Typical cost for an average size property: Pro s: Cheapest of the reports, likely to flag up anything severely major Con s: Owned by the lender, no protection, very basic Pages: 2-3 Typical cost for an average size property: Pro s: a detailed report, owned by you and offers an element of protection Con s: doesn t go into total detail, lots of caveats Pages: Typical cost for an average size property: Pro s: the most detailed survey, good level of protection, owned by you Con s: expensive Pages: 30-40

7 mortgage offer Once the valuation has been assessed by the lender they will complete their final checks and release the mortgage offer. This is not a legally binding document and you can still pull out of the purchase if you so wish but the offer is the final piece of the mortgage puzzle. The mortgage offer is a formal document stating the terms under which the lender is now happy to lend you the money to buy your home. Always give this a good read and check that everything is exactly how you want it to be. exchange / completion Your Conveyancer will pick up the reigns from here and will guide you through the process of exchanging contracts and all the way through to completion. If there is a chain of properties it is the Conveyancers job is to work with the other members of the chain to ensure all completions take place at the same time. Your first mortgage payment can be due immediately when you move in depending on the lender, but your Conveyancer will advise you on this.

8 Fordyce & Playle Etico House Highgate Works Highgate Green Forest Row East Sussex RH18 5AT phone: fax: Fordyce & Playle Limited (company number: ) Independent whole of market mortgage and protection advisers authorised and regulated by The Financial Conduct Authority and are entered on the FCA register ( under reference number: Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it. This guide does not constitue as advice and just to be used as reference point, please contact your adviser for more detailed information. This guide is for the use of residents of the United Kingdom. No representations are made as to whether the information is applicable or available in any other country which may have access to it. Information is correct as of December 2014.