What is a mortgage? From Hillhouse Mortgages
What is a mortgage? Hillhouse Mortgages take you through the mortgage process and how much you can borrow.
What is a mortgage?
Mortgages are an agreement between a lender and a homebuyer to provide the homebuyer with a loan to purchase a property. In return the homebuyer will give the lender a 'charge' over the property, which is legally binding, so that the lender has rights to ensure that payments are made if the terms of the mortgage contract are breached. If the home-buyer defaults on the loan, the lender can repossess the property and sell it to pay the loan.
How much can you borrow?
Lenders will assess your status and lend you a multiple of your income. This was traditionally three times' income, although some lenders will lend more. The calculation for lending usually takes into account guaranteed earnings, with overtime and bonuses considered at an agreed educed level. Your lender may need to see some recent payslips and will check your income details with your employer.
The deposit
Normally, you will need to put down a deposit of at least 5% of the value of the property, payable on exchange of contract. A few lenders will lend 100% of the property value, which can be helpful, particularly for mortgages for first time buyers. Mortgages involving 100% usually carry a higher interest rate due the increased risk factor for the loan.
Mortgage offer
You will receive an offer of mortgage from your chosen lender detailing the conditions of the loan. A copy automatically goes to your solicitor.
On exchange of contracts
On exchange of contracts, the deposit will be lodged with the vendor's solicitor and you are legally committed to purchasing the property. After this point it is not normally possible to withdraw from the purchase without forfeiting the deposit. Before exchange, it is imperative that you understand all the details of your commitment.
Never commit yourself financially until you have a formal mortgage offer in writing the contents of which you are happy with. All necessary insurances need to be in place by the time of exchange, as from this point you are responsible for anything that happens to the property.
On completion of the mortgage
This is when the property finally changes ownership, at a date agreed between you and the vendor. It usually occurs two weeks or more after exchange. Your solicitor will complete the legal documentation and arrange for the mortgage money to be paid to the vendor's solicitor. You will have to arrange to collect the keys to the property, usually held by the estate agent.
You may want to become familiar with the types of mortgage available.
