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Once you are happy with the survey and you are sure that the price you have agreed is still appropriate you can make a formal application for a mortgage. Before a lender issues a legal mortgage offer, your application will be underwritten - at which time you will be assessed on your ability to support the mortgage.
The mortgage application
This process can be exacting and a great deal of information is collected by the lender in making its assessment, examples of which include:
- Evidence of your income and commitments. You may be asked to provide wage slips, a P60 and bank statements.
- Information from credit reference agencies, employers, other lenders and landlords.
- Data supplied by you, including verification of your identity, your address and the purpose of borrowing.
- Assurances that the property is suitable security for a mortgage, including its condition and value.
- Credit assessment techniques, for example credit scoring. (If you want to examine your credit history before embarking on a mortgage application, you can contact credit reference agencies Equifax or Experian).
If your lender finds the application satisfactory, they will produce a mortgage offer detailing the conditions of the loan and confirming the interest rate payable. You should read the mortgage offer carefully and ensure that the terms and conditions are acceptable. Your mortgage broker should also have explained to you the terms and conditions of the mortgage and why it is the most suitable for you. However, you should also ensure that your solicitor has read the mortgage offer and has fully explained any terms and conditions that you do not understand.
Your solicitor normally needs the mortgage offer in order to exchange contracts with the vendor.
Now, it is time to move on to a formal exchange of contracts.
Exchanging contracts
By this time, your solicitor will have finished all the paperwork, such as carrying out a local Search, and a draft contract will have been approved for signing. The contract is a legally binding document that commits both you and the person selling their property to the deal. There's no backing out at this stage. That's why it's essential that you have completed the following steps before you sign and exchange the contract:
- All local Searches have been completed by your solicitor.
- The surveyor's report has been made and accepted.
- You have had a formal mortgage offer IN WRITING from your lender and you have read it carefully and are happy with the terms and conditions.
- You have a deposit of 10% of the price of the property available - your solicitor can sometimes negotiate for a smaller deposit if you do not have the cash.
- You have a definite completion date agreed for the sale - this should be noted on the contract. This is usually four weeks but may be less if all parties agree.
- There are no other issues to be resolved between you and the person selling the property. If you have, such as whether they will fix a broken window, or leave the carpets in the property when they move, get it sorted out now in writing before you sign.
Once this has all been resolved, you will sign the contract and give it to your solicitor, and then he or she will hand it over to the person selling the property in exchange for the contract that they sign. From now on, you are both committed to the deal and neither of you can pull out.
Once you have exchanged contracts, you become legally responsible for things like insuring the property, unless you are buying a leasehold flat. Your mortgage company may also require you to take out specific insurance with a company that they choose at this point.
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