House buying tips: 10 things you need to get a mortgage and what the jargon means
By Erin Santillo
Mortgage appointments can be lengthy and filled with industry jargon so doing some preparation beforehand will undoubtedly leave you feeling more confident. Whether the meeting with your mortgage advisor is taking place in person or over video chat, here are some tips to make the session as efficient as possible.
Professional services platform Stipendium has compiled a list of 10 documents and pieces of information you will need to bring along. These include photo ID, bank statements and comprehensive information about the property you plan to buy.
The company’s mortgage experts have also done their best to bust some industry jargon that may come up during the appointment. Do you know your LTV from you ERC? Well, you will soon.
“The mortgage appointment is one of the most important meetings a person will have when it comes to their journey to homeownership”, says Stipendium chief executive Christina Melling. “While it can be extensive, try not to worry, nobody is looking to catch you out or scupper your chances of securing a mortgage.
“It’s just about making sure that the loan you want to take doesn’t cause you any financial stress or difficulty further down the line and so it’s vital that you are completely transparent and provide an honest insight into your financial situation. To do a thorough job of this, a lot of detailed information is required and while the process itself can be lengthy, getting this information together ahead of time will ensure a far smoother process.”
What do I need to bring to a mortgage appointment?
- Passport or full UK photocard driving licence
- Proof of address dated within the last three months (eg utility bill, bank statement, internet bill, council tax letter)
- Proof of income for the last three months (eg payslips or invoices)
- Bank statements for the last three months
- Bank details for the account from which monthly mortgage payments will be made
- documents showing your proof of funds, such as money saved for a deposit
- Insurance details, including life insurance, critical illness insurance and home insurance (if applicable)
- Details about any other mortgages already held in the homebuyer’s name
- Information about the home you are planning to buy (eg address, type of property, age, value and any survey reports that are available)
- Details of the buyer’s solicitor or conveyancer who is helping them with the legal aspects of the buying process
What industry jargon do I need to know?
AIP – Agreement in principle (AKA a decision in principle)
A document that a mortgage lender will provide to confirm that a buyer can borrow a certain amount of money. Some sellers will refuse to accept an offer before seeing this as proof that the buyer can actually afford to follow through.
DTI – Debt to income ratio
The amount of debt a homebuyer has in relation to their income.
ERCs – Early repayment charges
Penalty fees the buyer will have to pay if they want to leave the mortgage early, usually within a specified period of time after first taking the mortgage out.
A person who pledges to honour the remortgage payments should the homebuyer, for whatever reason, not be able to afford to pay it themselves. Lenders will usually insist on a guarantor if the buyer has a low income or is unable to provide sufficient proof of their long-term ability to make payments, such as first-time buyers. Guarantors are often family members.
HLC – Higher lending charge
Some lenders will apply an HLC to protect themselves when a buyer is taking a loan for the vast majority of the property’s value; typically 75% or more.
The homebuyer only pays off the interest on the mortgage each month and does not, therefore, repay any of the actual capital. This makes the monthly repayments more affordable but means that after the agreed period of time – 25 years, for example – the initial loan is still as big as it was at the start. It is usually hoped that the buyer will have saved enough money by this point to repay the loan, or they plan to sell the property for more than they bought it, pay back the mortgage and have profit left over for themselves.
LTV – Loan to value
The size or value of a mortgage (loan) compared to the value of the property being purchased, usually displayed as a percentage. For example, if the home is worth £100,000 and the buyer has a deposit of £10,000, they will be taking a mortgage of £90,000. This is an LTV of 90 per cent.
A homebuyer repays the interest and part of the base mortgage each and every month. This means that the money owed decreases every month until hitting zero after the agreed period of time – 25 years, for example – after which the buyer owns the property outright.
SVR – Standard variable rate
Most mortgages come with offers that mean the first few months or even years will be charged at a lower interest rate than the rest of the mortgage’s lifeline. SVR refers to the rate that kicks in after this initial offer rate has expired.
A tracker mortgage means that, instead of being fixed month after month, the mortgage rate follows the Bank of England base rate.
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