Embarking on getting a loan for a new home (a mortgage) or for your existing home, referred to as a homeowner loan, can be a daunting task. We?re here to help you take the guess work out of the process and the fees so you?ll be better prepared to undertake this challenge.
The process for getting a mortgage involves several steps, some of which happen simultaneously. First you?ll need to determine how much you per month you can pay. Be sure to factor in insurance payments, lender's fees, interest, etc. into your monthly budget when you calculate this amount. Then you?ll need to work out the repayment terms; generally there are two types of mortgage loans, interest only and repayment loans. For each repayment type, there are several ways you can repay the interest of the loan: fixed rate, variable rate, capped rate or discount rate. We cover the pros and cons of each loan type on our website if you need more information on this. Next, you will make an offer on the home, ?subject to contract?. Once this has been accepted, you will work with your solicitor to create a contract. Then the property will be inspected by a surveyor to determine the value. Many times adjustments to your offer will be made after the surveyors report is complete.
At this point you apply for the mortgage loan with your preferred lender. Frequently lenders will work with you prior to choosing a house so you know how much they will lend you, called a Decision in Principle (DIP). In either case, the lender will request the following information from you, sometimes more depending on the lender: income, identity, address, employment status, the kind of property, reference checks, as well as a credit check. You will also fill out the lender's application. They will usually have a valuation performed on the property to make sure the home is worth the amount of the loan. Once you?ve been approved, a formal offer will be made through your solicitor and they will draw up contracts. Contracts will be exchanged with the seller of the home, and many times you will pay the deposit. Once signatures have been made on the contracts, the sellers are paid with the mortgage.
There are many fees associated with a mortgage which you will need to consider while you are shopping around for the best rate, loan and lender. Mortgage application fees can run upwards of several hundred pounds. Many times a lender will charge a mortgage indemnity fee premium if you only pay a small deposit, usually less than 25 per cent. It?s not a mandatory fee, so if you?re planning on paying a small down payment, check around with many lenders to see if they charge this premium. You may also be require to purchase Mortgage Payment Protection Insurance, so this is another expense you should be ready to cover. Exit and redemption fees are penalties charged should you decide to refinance your loan or if you decide to pay the balance off prematurely. As with any loan, read the fine print to see what a lender will charge you if you decide to pay the loan off early or refinance if you find a better rate a few years later.
Getting a homeowner loan, a secured loan against the equity of your home, can be a great way to finance home improvements, pay for college, consolidate debt or pay for other major expenses. Luckily, the process for this loan is usually not as laborious as the mortgage application process. Since your house is your collateral against the loan, lenders usually offer better rates and loan terms. The lender will have an application for you to complete, and they will work with you on how much you can borrow against your home, sometimes as much as 125 per cent of its value.
You can expect fees associated with a homeowner loan, including but not limited to the following. An arrangement fee, which can cost several hundred pounds, is sometimes non refundable. If you decide to pay off your loan early you will often be charged an early repayment fee. Once again, the amount varies between lenders so make sure you check this before signing the loan documents. Finally, check with your lender on how they calculate interest. Annual interest will cost you more than if they calculate it based on a daily rate.