Note: as mentioned before, you may have already agreed a ‘mortgage in principle’ with your lender before viewing any houses. In which case, you can skip on down to Valuation and Survey. Otherwise, please read on…
Agree Mortgage in Principle
Now that you have found your dream home and an offer’s been accepted, it’s time to visit your chosen lender to get a ‘mortgage agreed in principle’. Simply put, this is a conditional “yes” to your loan request, subject to final checks.
You will need to complete the mortgage lender’s forms. This is traditionally done face-to-face with a mortgage adviser at a high-street branch, but increasingly, forms can be completed online.
You’ll need to provide details of:
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Your income – lenders sometimes also include any bonuses/additional income when calculating how much money to lend you.
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Your financial commitments – you’ll need to tot up your monthly outgoings (excluding rent). This figure will be subtracted from your income to arrive at a monthly amount you can comfortably afford to repay.
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Trading accounts for the previous three years if self-employed.
See also ‘Step 1: How Much Can I Borrow for more information.
Once the forms have been completed, the mortgage lender should be able to say then and there if it can agree a ‘mortgage in principle’ and for how much, subject to final checks.
Final checks include assessing your credit status and carrying out a valuation of the property. Only when the mortgage company is satisfied that its risk of lending you money is minimal, will it formally approve the mortgage.
Valuation and Survey
Before your mortgage can be formally approved, a valuation (sometimes called a basic survey) is carried out to satisfy the lender that the property is worth what it is being asked to lend. This is to minimise the risk that the lender won’t be left out of pocket in the event of repossession.
An approved surveyor will visit the property to assess its value before preparing a report. As well as assessing whether or not the property is worth the asking price, the surveyor’s valuation report should highlight any obvious concerns regarding the property.
But remember this – a valuation is not a proper survey!
The main difference is that a valuation is carried out on the lender’s behalf, whereas a proper survey is carried out on your behalf.
You should always consider an independent survey before committing to a purchase as a basic valuation may miss problems with the property. A basic valuation alone affords little, if any, legal recourse should a major problem with the property be discovered later. However, the lender may insist on a proper survey if the basic valuation highlighted any issues (e.g. suspected damp, subsidence, wiring).
Types of valuation/survey
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Basic Valuation/Basic Survey – Carried out by a surveyor upon instruction from the lender. It is the least thorough type of survey, and could miss potential problems. Its main intent is simply to value the property. The buyer usually pays for this service (between £100 and £300), though some mortgage deals include a free or refund of valuation.
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Homebuyers Report – more thorough than a basic valuation, this can cost up to £500 and provides a reasonably detailed report on the general state of the property. However, this survey is not comprehensive and there are no guarantees that all problems will be uncovered.
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Building Survey (Full Structural Survey) –costing up to £1000, this is your most thoroughly detailed option. These are usually sought for older or unusual properties.
If a survey shows that work is required on the property, you can ask the seller to carry it out or get them to reduce the asking price by the same amount that the work will cost you.
However, the seller is neither obliged to get the work done nor drop the asking price. At this stage, you may lose the property as the seller may decide to seek another buyer, or your mortgage lender may decide that the property is overvalued and retract the loan offer on that address.
In practice, such disputes are frequently resolved and the purchase process continues.
Note: A surveyor will be sent to re-inspect the property after any work has been carried out.
The Mortgage Offer
Only after all the requisite checks have been done, the valuation/survey has proved satisfactory, and any required works have been completed to the lender’s satisfaction, will the lender make a firm mortgage offer.
The mortgage company will send you confirmation of the offer in writing, along with a copy of the mortgage contract. Your solicitor will also be sent a copy of these, and will call you in to sign the contract. You are now at the final stage in the home buying process – exchange and completion.
Next - Step 10: Exchange & Completion
Related articles:
Don’t know your assurance from your LTV? Check out our mortgage glossary.
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The Confused.com Credit Crunch Guide to Remortgaging
Confused.com’s Credit Crunch Guide to Nabbing your First Mortgage
