Tony Harris of Freelancer specialist IFA, ContractorFinancials, gives a definitive guide to securing a contractor mortgage and successfully making that move into the housing market.
1. Find out how much you can borrow
Approach a contractor-friendly lender or speak to a specialist mortgage advisor to arrange an ‘agreement in principle’ from whichever mortgage lender you decide is most suitable for your needs and this will mean that you can start looking for properties. You may find it far easier to base affordability on your contract rate rather than accounts and shouldn’t have to pay for the services of a mortgage broker, although some now do charge a fee so it’s best to check before you start to work with one. An agreement in principle can be a great bargaining tool when you are negotiating on a property as it shows that a lender has agreed that they will provide a mortgage to you of a certain value and should massively improve your bargaining power because you can show any would be seller or estate agent that you mean business.
2. Find your dream home
When you start house hunting, it can be both an exciting and a daunting time with so many options available but knowing how much you can borrow (using your agreement in principle as a guide) will allow you to narrow your search and make the right decision for your future. Online property search tools can be useful for finding a property but don't make the mistake of also thinking their ‘best buy tables’ can be used to source your mortgage. These sites are inevitably aimed at the employed or self-employed whereas you fall between both categories and so need to a little bit of extra homework. If you really are struggling to find the time to properly research the market a buying agent can carry out the necessary legwork on your behalf. Once the preserve of the mega-wealthy, this service has now become a lot more widespread and is fast becoming the norm in the U.S. A buying agent works on your behalf whereas an estate agent works for the seller and so will source a property that fits with your needs for location, price etc and can help negotiate the price on your behalf.
3. Make your offer
Once you find your dream home, you need to put in an offer. The key to negotiating is to know what you can afford to pay and how much you believe the house is worth. You can check what the house was previously bought for using websites that display the selling prices for houses by postcode or street name. This knowledge will give you the upper hand in any negotiation and will help to ensure you don't pay over the odds for a house in your chosen area. Once you have made an offer you will then liaise with the estate agent who will act as a go-between for you and the seller. Stick to your guns and don't be seduced into steadily increasing your offer so that it becomes unrealistic. Not only will you be likely to regret paying too much but it may also prove impossible to secure the mortgage you need if the lender judges that you are paying over the odds for a property. You will need to agree a final sale price for the property and once this has been set you can start the buying process.
4. Contact your mortgage advisor or lender to start the mortgage application and instruct a solicitor
Once you have agreed a purchase price for the property, you can kick start the mortgage application proper. In order to process your application you will need identification such as your passport, driving licence and utility bills to help protect against identity fraud. Have all of the details needed to complete the application to hand as providing these in dribs and drabs can significantly slow down the process of securing your mortgage. Typically, 3 months business and personal bank statements, your CV and contract or accounts will also be required. At this stage you will need to instruct a solicitor, and your mortgage advisor or lender should be able to recommend a specialist conveyancing firm that ideally will use technology to reduce delays and cut costs for you. Alternatively, you may prefer to locate a local firm if you would like the reassurance of having a face-to-face meeting.
5. Searches and building surveys are carried out on the property
Having already agreed to lend to you during the application for an agreement in principle, the mortgage lender must now ascertain whether they want to lend on the property that you have chosen. A number of checks are carried out in order to assess whether or not the property is worth what you have offered to pay for it. These checks include area searches, building surveys and land surveys and are designed to find out if your property is a secure long term investment. It will highlight whether your property is built in an unsafe area (for example on contaminated land) or whether there are structural problems such as subsidence which may damage the property. Some of these checks are carried out by your solicitor and some by the lender itself. In most cases these checks bring up minor issues that can often be ignored. However, if there are any more serious issues, you can negotiate with the buyer to get them resolved before you move in as a condition of the sale, or you can negotiate to reduce the purchase price to allow for these unforeseen costs. Sometimes the lender may insist that these problems are dealt with before they will agree to lend against the property.
6. Mortgage offer will be produced
Once all of the searches and surveys have been completed and any potential problems dealt with, your lender should issue an ‘offer’. When this happens, your mortgage advisor or lender will contact you to confirm that your application is going ahead successfully and you can then contact your solicitor to inform them that they can press on with finalising the purchase.
7. Your solicitor will contact you to ask you to sign the contracts
Whilst the searches are being performed on the property and the mortgage lender is investigating any queries, the next step is for both parties to sign the contracts. You or your mortgage broker will inevitably need to liaise with your solicitor to ensure this goes smoothly.
8. Your solicitor will request your deposit money and exchange contracts
Now comes the scary bit. Your solicitor will contact you to request your deposit money which is normally around 10-20% of the purchase price. This is transferred to your solicitor so that they can hold it for you between exchange of contracts and completion. When you exchange contracts your deposit is handed to the buyers and acts as a binding agreement between you and the seller. Your solicitor will handle this for you so you don't actually need to meet with anyone. Once you have paid your deposit, the seller must go through with the sale or will have to return your deposit, but if you pull out of the purchase then the seller is able to keep your deposit as compensation. If you are selling a house at the same time, it is likely that all or part of the deposit on your new home will only be acquired from the sale proceeds of your current property. Your solicitor should offer a facility to cover the deposit money between exchange and completion. Amongst the excitement of exchanging contracts, it is easy to forget that the property is now probably your most valuable asset to protect and look after. For that reason, it is essential that you take out building and preferably contents insurance to protect your home and belongings against loss or damage.
9. You agree a completion date. The mortgage advance is requested and deeds transferred
The only thing that you will have to do at this stage is to agree a completion date with your solicitor, which they will then negotiate with the seller's solicitor. Once you have agreed this completion date with the seller, you or your mortgage broker will liaise with the mortgage lender to make sure that they are ready to release the funds before this date. The final stage in the process of buying a home is conducted behind the scenes by your solicitor. The mortgage advance will be requested by your solicitor so that the funds have cleared in time for completion. They will then send the transfer deeds to the seller’s solicitor and once these have been received the sale is complete.
10. The purchase is completed and the estate agent will hand you the keys to your new home!
Now that the property is yours you can pop open the champagne....congratulations, you are now the proud owner of a property!
The process works slightly differently in Scotland.
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