Buying a home
DATE: 18 August, 2021 // Read more from the Blog »
I’ve agreed to buy a house, what do I do now?
Once you’ve had an offer accepted on a property, assuming there’s an estate agent involved they will want to see the following proofs to confirm you’re actually capable of buying the house for the amount you’ve offered. Some agents may ask for some or all of these before you’ve offered to make sure you’re not a waste of their time. But arguably you should only need to produce them once the offer has been accepted. They will want to see your proof of ID & Address, your proof of mortgage often called an AIP/Agreement In Principle, DIP/Decision In Principle, or MIP/Mortgage in Principle. Your proof of deposit and some may need your solicitor/conveyancer details before they will mark the property as sold or sold subject to contact. Some will refuse to mark it as sold altogether, in my opinion this is bad practice and allows them to continue to market and negotiate with others in bad faith. This is where gazumping can happen, where another person offers more than you and you lose out on the house. This is less of an issue in Scotland where the rules are different but I won’t got into that here.
What is a decision in principle/ mortgage in principle/agreement in principle/proof of mortgage?
The decision in principle is a theoretical agreement based on the information keyed into the application, it isn’t underwritten (generally speaking), documentation hasn’t been assessed, it’s all based on the information the person has keyed in. This is the benefit of getting the documentation to the advisor early on in the process so that the information is as accurate as possible. If the advisor makes a mistake or you give them the wrong information whether it be an accident or intentional, the real answer could be very different so it’s best to be as honest as possible with the advisor to avoid problems that could have otherwise been avoided.
What happens with the mortgage application?
Once the application is submitted the lender will usually want information such as pay slips and bank statements, p60’s and other variations. The paperwork required does differ from lender to lender it also differs on the individuals on application. Generally, the smaller the lender the more paperwork they will want. But sometimes the smaller lenders can be more lenient with their criteria or offer more competitive rates, this is because they can’t compete with the bigger lenders on a level playing field so they will often look for a niche for which to focus. As part of the application the lenders will carry out a valuation of the property, this is to make sure the property is up to the standard that they require and is worth what you’re paying. Now whilst this does protect you, in reality it’s to protect them. They don’t want to lend someone a small fortune just for you to immediately be in negative equity. The banks work off a worst-case scenario of them having to repossess and then the likely hood of finding a buyer in a reasonable time frame. If anything could deter a buyer e.g. damp. the lender will apply caution. Once everything has been received, satisfied, underwritten (where needed) and then agreed the mortgage offer will be issued.
What types of valuations are there?
There are different types of valuations, the most common is the standard, some lenders will offer these for free but they may not give you any paperwork which can be problematic if something goes wrong. With a basic valuation there are a few options that can be followed, an AVM (computer says XYZ), a desktop which is a surveyor on a computer, a drive-by which is a surveyor just driving past and having a look from outside, or they can actually go in and have a look. Whilst generally the lenders will generally be confident to go for a less invasive valuation type, this decision is not up to you. If they choose an option you don’t like... tough, most won’t do anything about it. Some lenders will allow you to upgrade to a more in-depth valuation type, typically a homebuyers report or a building survey. A Homebuyers report is typically 20-30 pages, it’s a traffic light system, red amber green to highlight any potential issues. The surveyors are typically cautious not to miss anything so they don’t get sued, so they’re usually pretty thorough and can scare the life out of buyers, especially first-time buyers. The last is the least undertaken and most expensive, the building survey. These are generally reserved for much older properties or those that are of non-standard construction or have been heavily extended and modified e.g. converted wind mill.
What happens when the bank/building society has everything they need?
Once the lender has received all the required proofs, a satisfactory valuation and the underwriter has agreed the application, a mortgage offer will be produced. A copy will go to the advisor, the applicants and their nominated solicitor/conveyancer. At this point the mortgage is good to go and it’s just down to the solicitors to complete their part. The full process for a mortgage offer to be produced can be around 2 weeks, but they can be done much quicker or even take months. The legal side can take a while, especially if there is a chain.
How long does the mortgage process usually take from beginning to end?
In normal circumstances for a typical house purchase the mortgage will be agreed in around 2 weeks, but the full purchase including the legal side will take 8-12 weeks. There are a lot of variables that can cause delays, Christmas is a common one. Surveyors being busy, somebody in the chain being slow is another. When you’re buying in a chain, ultimately its only as strong as its weakest link. Good estate agents that do the job properly can have a big impact on house purchases and chains going through. If there is no estate agent, an online estate agent the time frame can be 6 months with no chain. So, when you have one of these scenarios in chain, don’t hold your breath for a quick completion, it likely won’t happen. Equally cheap solicitors often throw a spanner in the works too.