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Mortgage and Funding Guide
When buying a new home, it is crucial you have the right funding in place. For most people, this is the biggest purchase they will have made in their life and so it can be tricky to know where to begin with finances, particularly if you are using a mortgage. Read our helpful Mortgage and Funding Guide to give you the best start in your homebuying journey.
What is a Mortgage?
Mortgages are loans taken out to allow you to buy a property. The amount you can borrow can vary, depending on your deposit, income, and credit score. Mortgages are repaid on monthly periods over a set term, plus interest. If you fail to keep up your monthly payments, your lender is entitled to take possession of your property.
There are several types of mortgages, including first-time buyer mortgages and green mortgages. Your mortgage rate can be fixed or variable, and the repayment term can be up to 40 years. The longer your mortgage term, the lower your monthly payments. However, the total amount you pay will be greater.
The Mortgage Process
When you decide to start looking for a new home, it is important to know how much in theory you will be able to borrow. Having an Agreement in Principle (AIP) or Decision in Principal (DIP) in place means you have a figure which should you apply for a mortgage on, you will be accepted. You can then begin to work out your finances and your price range for a new home.
Applying for an AIP/DIP is straightforward, you can do it on most lender websites. You will be asked a number of questions on your position, finances and employment to determine your eligibility. Your AIP/DIP result is usually available immediately or will be emailed to you shortly afterwards.
Please note that if you proceed to apply for a mortgage, you will be asked to provide much more information than for an AIP/DIP.
This is the exciting part! Now you know how much you can borrow, you can now start to look for your new home. Once you’ve found it, make it yours.
For a new home, like a Cala home, you’ll have to reserve the plot by paying a Reservation Fee and signing a Reservation Agreement. For a second-hand home, you’ll need to place a formal offer through your Estate Agent dealing with the sale or your solicitor. Once confirmed the home is yours, solicitors will begin to draft contracts.
Once your offer has been accepted, it is time to apply for your mortgage. It is best to do this as soon as possible, as market conditions are frequently changing. Your mortgage offer will only be valid for a set period of time – usually three to six months – so make sure this covers you until your Legal Completion date.
There are several documents your mortgage provider will ask to see, just to confirm your identity and financial status, so it is good to have these ready. Usually they will ask for:
- Proof of identity, such as your driving license or passport
- Proof of residence, such as a council tax or utility bill. If you are renting you might also be asked for your landlord’s details.
- Bank account information and six months of statements
- Six months of payslips
- Details of any current loans or endowments
- Details of the solicitor you are using.
Usually there is an administration fee from the mortgage provider, which covers your identity and financial checks as well as a mortgage valuation survey. The survey confirms the value of your new home and ensures the mortgage you have applied for is suitable. Please try and have this undertaken as soon as possible to minimise any delays.
Once contracts are signed, your lender will send the agreed funds to your solicitor prior to your Legal Completion Day. Your solicitor will then transfer these funds to your seller on your behalf alongside your deposit and any other outstanding finances paid at Exchange of Contracts. Once it is confirmed your funds are received, you will be able to pick up your keys.
Your Deposit
It is important to remember your mortgage does not include your deposit and you need to have this money ready in cash for Exchange of Contracts/Conclusion of Missives. Remember if you are buying a second-hand home and you have offered over the Home Report/Survey value, you will also need to have this money ready in cash.
Most mortgages look at a 10% deposit, but this can be higher or lower. A higher percentage deposit usually means you can access mortgage offers with lower interest rates.
However, mortgages with a 5% deposit are becoming more popular, particularly for first-time buyers. If you are looking to put down a 5% deposit, be sure to check out our Deposit Unlock purchase scheme.
