Historically, buying a house has proven to be a gateway to your family happiness and long term financial success. However, it would be best if you do your research before committing because historical results do not guarantee the same returns in the future.
What is the process of buying a house?
This is the first question most people ask when they start their home buying process.
Buying a house usually is a lengthy & complicated process. It requires:
- A lot of patience
- A quite a bit of negotiations
On this page, I’ll dig deep into the eight crucial steps of the home buying process in the hope of making this complicated process a little simpler for you.
Let’s get started!
1. Save for a mortgage deposit
If you are a first-time buyer, saving for a deposit to buy your first home probably be the most complex and time-consuming process.
In theory, you can purchase a property with a 5% deposit.
However, in reality, how much deposit you’ll need to buy a property depends on your circumstances.
For example, you are looking to purchase a property for £100,000, and your annual income is £30,000. You also have a good credit history and no other commitments. You can afford to purchase a property of £100,000 with a 5% deposit along with usual expenses.
However, if you are in London where it is hard to find a property under £400,000, which means the amount of required deposit of 5% changes dramatically from £5,000 to £20,000 along with affordability requirements to borrow the rest of the £360,000 mortgage amount.
You’ll require a lot more personal income to afford the £360,000 or come up with a larger deposit to cover the affordability gap.
A few ways to save for a mortgage deposit:
- Reduce your regular bills
- Explore ways to cut down on everyday spending
- Use cashback offers on credit cards
- Review your spending regularly
- See if you can reduce your rental cost
- Look for ways to increase your earnings
- Choose saving account wisely
A few other ways to explore to speed up the process of buying a house.
- Knock on the door of your parents for a gift deposit or guarantor mortgage
- Purchase with family & friends
- Learn more about government schemes such as help to buy equity loans or shared ownership
It is hard work to get onto the property ladder, but it will be worth the effort in the end.
2. Improve your credit score
Saving for a deposit can take time. Therefore, it is advisable to check your credit report and look for areas of improvement.
A few essential things, which helps you improve your credit score:
- Get on the electoral register if you haven’t already done so
- Use your credit limits sensibly (lower the better)
- Never miss or be late on any of your credit commitments
- Close unnecessary accounts
- Review your credit associations with other people
- Avoid making a lot of credit applications in a short period
It is not necessary that you can’t get a mortgage if you don’t use credit or have bad credit. However, using credit wisely over the long term helps you improve your credit score and chances of getting a mortgage from most lenders and best interest rates.
3. Get a mortgage in principle
Congratulations on saving a deposit (a big milestone) & looking after your credit score!
It’s time to take the guesswork out of the equation and get formal mortgage approval from the lender to find out your budget for your property purchase.
What is a mortgage in principle?
A mortgage application is a two-step process. The first part is Decision in principle (DIP) or acceptance in principle (AIP) and the second part is a full mortgage application.
DIP/AIP both are the same things. Some lenders name it DIP, and some call it AIP.
Mortgage lender gives you the indication to offer you a mortgage by checking your credit score and, based on the information keyed in (without reviewing the paperwork), subject to full underwriting and suitable property valuation.
How to get a mortgage in principle?
DIP/AIP does not guarantee a mortgage. Lender criteria vary significantly, which does not reflect fully at the DIP/AIP stage.
Before getting you an acceptance in principle, a whole of market mortgage broker will:
- Complete your fact find including your needs & demands
- Check your affordability
- Research the best interest rates as per your needs & demands
- Review the lending criteria to ensure your mortgage eligibility before getting you a decision in principle.
Therefore, it is vital to seek professional advice from your bank or mortgage broker to increase the chances of getting a mortgage following obtaining approval in principle.
Your mortgage broker can:
- Save you time researching individual lender criteria
- Reduce the hassle of checking how much you can borrow (as not all lenders lend you the same amount)
- Help find you the most appropriate mortgage deal for your needs and circumstances
You can check out 10 frequently asked mortgage in principle questions answered for you by clicking on this link.
4. Find a property
Most buyers start their property search online nowadays. You can check out the following property sites to get started on your search as well.
- OnThe Market
Although most buyers are searching online, it is a good idea to register with your local agents and build rapport with them. This can be one of the best ways to find a property deal sometimes. You can also go for a walk to your buying area and look for sale boards.
Not all agents can afford to pay Rightmove or Zoopla hefty monthly subscriptions to market their properties. This sort of property usually has less interest or offers, increasing the chances of buying a property at a lower price.
5. Make an offer
How much you should offer on a property depends on several factors.
- The property market in general
- Demand in your local area
- How much you can afford
- How much do you like the property
- How much time do you have to move in
- The future potential of the property (don’t forget the cost involved to realise that potential)
- You are buying to live or to let out
The list goes on and on!
Regardless of your individual property buying situation, you should consider the following essential factors before making an offer or negotiating a property price.
- Review nearby sold property prices. You can easily do it using the sold house price feature on Rightmove. Recently sold similar houses in the area reflect the more accurate property value than an asking price.
- Go for a walk in the neighbourhood. You can fix the house, but it is not possible to move it to another location. Visiting the area at a different time can give you lots of helpful information.
- Check out for flooding risk. Don’t leave it to chance, as flood risk can impact your house insurance significantly. You can visit The Environment Agency (England) to obtain a detailed flood risk report.
- How long the house is on the market. The longer the house is on the market, usually the easier it is to negotiate the price. However, on the flip side, there could be other underlying reasons for it. Therefore, do your research & speak to the agents to find out as much as possible before making an offer.
- Vendor circumstances. If there is a chain, how long is the chain and whether you have time to wait that long? Also, many chains break, which leads to loss of money, time & effort.
- Make a budget for the work required. Make a list of all the work if you are buying a house, which involves work before moving in.
Property is an asset that can go down in value as well as up. Therefore, do your due diligence before making an offer. Expert property investors say that you make money on purchasing a property; making money by adding value is the future hope, and it’s not wise to bet on it.
6. Apply for a mortgage
It is time to apply for a mortgage following the acceptance of your offer on the property.
You will also require conveyancer details who is on your mortgage lender’s panel to complete the legal work for you & the lender.
At this stage, your mortgage broker will complete the full application, which includes:
- Your personal details
- Employment details
- Financial details
- Property details
- Valuation contact
- Conveyancer details
- Direct debit details
The lender underwriter reviews your application and supporting document once the complete application is submitted.
Some lenders instruct the valuation on the submission of the full application. However, others only instruct the property valuation once the underwriter agrees to the application after reviewing the supporting documents.
You can check out the 10 Steps UK mortgage application process to become a homeowner, landlord or save money on remortgages for details.
7. Arrange protection
For most, a mortgage payment is one of their most significant financial commitments. It will not be easy to meet regular mortgage payments with savings if you’ll get sick or lose your job or your house gets damaged due to any natural disaster such as fire or flooding.
There are different types of protection products available. However, the following are the essential protection options you should consider when you buy a house.
- Building insurance. You must have building insurance in place at the time when you exchange contracts. If you do not have buildings insurance in place, you can breach your mortgage terms as it is the must-have requirement by most lenders to protect the security.
- Life assurance. It gives you the comfort of knowing that your loved ones will be taken care for should the worst happen. Life assurance ensures that in the event of death, your mortgage will be repaid. This means that your dependents will be left with a mortgage-free roof over their heads.
- Critical illness cover (CIC). CIC is similar to life assurance, but it pays out on a diagnosis of certain illnesses instead of paying out on death.
- Mortgage payment protection. Mortgage protection insurance (also known as ‘mortgage payment protection insurance’ or simply ‘mortgage insurance’) will pay you a set amount each month, usually for a period of up to two years, if you are unable to work.
- Income protection. This offers you the security of knowing that your essential repayments will be made if they are off work due to an accident or sickness.
For example, if you are in an accident and cannot work for a while, a lack of comprehensive income protection cover means you will rely solely on state benefits, which are unlikely to be sufficient to meet your mortgage repayments, let alone any other essential spending. Income protection can help as it provides a tax-free monthly payment until you can return to work.
If you’re a homeowner getting certain income-related benefits, you might be able to get help towards interest payments on:
- Your mortgage
- Loans you’ve taken out for certain repairs and improvements to your home
This help is paid as part of your benefit called Support for Mortgage Interest (SMI).
What you’ll get
If you qualify for Support for Mortgage Interest (SMI), you’ll get help paying the interest on up to £200,000 of your loan or mortgage. If you’re getting Pension Credit, this figure is £100,000.
Do you know? SMI as a benefit ended on 5 April 2018 and was replaced by a loan. You can find out further information by visiting gov.uk
8. Complete the legal work
This is the final step in your house buying process before collecting the keys and finally becoming a homeowner.
Your conveyancer acts for you to ensure the vendor solicitor satisfactorily answers all the enquiries and you get the clean title of the property.
Your conveyancer does the following to protect your interest:
- Review the purchase contract & legal title
- Raise enquiries to clarify points e.g. past planning permissions
- Carry out local authority searches to ensure everything is in order
- Your solicitor acts for the lender as well and ensures lender interests
- Once all of the above is in order, exchange the contracts and agree on mutually convenient completion dates for all the parties.
- Transfer the balance amount of funds to complete the transaction
- Registers your ownership with the land registry
- Pay the stamp duty (if applicable) to the HMRC
Your conveyancer plays an important role in your house purchase transaction. Therefore, it is wise to choose carefully. Your mortgage broker usually can recommend tried and tested conveyancers to save you money & a lot of hassle.
Senior Legal Executive
Lester Dominic Solicitors
Legal work is crucial in any conveyancing transaction, therefore, it is fundamental for you to engage a Solicitor firm specialising in residential conveyancing and who can provide you with effective and efficient personal service.
You need to understand that your solicitor can only deal with matters affecting the property which are highlighted by the searches undertaken online. They would not be able to advise you on any issues relevant to the structure of the property, therefore, it is quite useful to have a home buyer survey to identify any issues in the building/structure of the property prior to your purchase to avoid any surprises post purchase.
Timeline for a process of buying a house
In reality, it is tough to guess the timeline for buying a house. However, in theory, once you find the property and the chain isn’t a mile long, you can expect 6 to 12 weeks to complete the whole process.
Here is a brief overview of the buying a house timeline to give you a rough idea.
- Save for a mortgage deposit. The timeline for this depends on individual circumstances.
- Improve your credit score. You may not need to spend any time on it if everything is in order.
- Find a property. You may find an ideal house on your first viewing, and you may have to view hundreds of properties before you find something that ticks all your boxes.
- Make an offer. This usually takes a week or two.
- Apply for a mortgage. Your mortgage process usually takes 2-4 weeks from the start to getting a mortgage offer.
- Arrange protection. This step does not slow down the house buying timeline and can be completed within a couple of weeks.
- Complete the legal work. The timeline for this step again relies on how many parties are involved and their individual circumstances. If you can complete this within six weeks, you can call yourself a winner.
I hope this step by step guide will help you simplify the complicated & lengthy house buying process. Buying a house is hard work; however, it will be worth the effort in the end.
All the best for your home buying journey!
If you have found this guide helpful, please consider sharing it with family & friends. Sharing this guide can help me spread the word out, and someone become a homeowner.