Buying your first home? Feels like a big deal doesn’t it? Your sense of trepidation won’t be helped by all the unfamiliar jargon, you’ll hear along the way.
So, let’s take some time out to get clued up on it all.
Most mortgage deals come with an arrangement fee, which covers the cost of setting up a loan.
Arrangement fees are typically around a thousand pounds, but in some cases you can spend as much as two thousand pounds, or even more.
This means the fee can have a big impact on the total cost of your mortgage, so the total cost of your mortgage is exactly what you need to work out.
Total cost of your loan
Say you want a two year fixed rate mortgage, for example. Get on our mortgage calculator and find out how much a given rate, would cost you each month on the amount you need to borrow.
Multiply this monthly payment by twenty four, which is the length of the fixed rate term and then add on the arrangement fee.
In some cases it can actually work out cheaper, to pay a higher rate of interest, in return for a lower arrangement fee.
Mortgage Agreement in principle (AIP)
A mortgage agreement in principle or an AIP is a document that’s issued by a bank or building society and it tells you exactly how much you would be able to borrow, based on information you’ve already provided for example, your salary and all your monthly outgoings, including debts.
These documents are very useful in showing to a seller that you’re a serious buyer, but they’re not legal. Remember a lender can change its mind at any time, if your circumstances change and in fact even if they don’t.
This is a point when literally the buyers and sellers solicitors exchange contracts and the buyer pays a deposit of usually 10 percent of the agreed price, this is also the point at which the deal becomes legally binding. As a buyer, if you pull out now you could lose your deposit.
A completion date is also agreed at the point of exchange, which is usually no more than 4 weeks’ time.
Conveyancing is a term that applies to the legal work carried out by your lawyer or solicitor or property lawyer, who can themselves also be known as conveyances.
The conveyancing process includes - Registering your property with the land registry, conducting local searches into the area and amending the property deeds. You’ll need to pay for these legal services of course, but it is possible in some cases to fix your price upfront.
A valuation is something that the lender will carry out, to ensure the property you’re buying is adequate security for its loan.
Even though the valuation is for the lenders benefit you’ll have to pay for it, the cost will depend on the price of the house, but you should budget for several hundred pounds.
It’s important to remember a valuation’s not the same as a survey, weather you have a survey on the house or not is entirely up to you, but it is a good idea.
On most homes, a home buyers report which will expose problems such as damp, dry rot and subsidence is adequate, but if you’re buying an older or unusual home for example a Tudor cottage or a lighthouse, you’ll be best off with a full structural survey.
Survey costs will vary according to the value of property you’re buying, but you should budget for a few hundred pounds for a home buyers report and a thousand pounds upwards, for a full structural survey.
Maximum loan to value (LTV)
When you see a mortgage advertised it will come with a maximum loan to value, it is often shortened to LTV and this will show you the maximum you can borrow in relation to the property’s value.
So if the loan to value is seventy five percent, that means you’ll need at least twenty five percent to put down. For example, if the property you’re buying is worth two hundred thousand pounds and the maximum LTV is seventy five percent, you’ll need a deposit of at least fifty thousand pounds before the bank or building society will agree to lend.
And finally completion, this is the point at which the ownership of the property is legally transferred from the seller to you, the buyer.
It is also the point at which you can pick up the keys and move in, time to enjoy your new home.
We’ve got lots more tips and advice on our website, so check us out there, or drop us a line on facebook or twitter.