FTB clarification would be greatly appreciated...

mrsbmartin

Hi everyone!
So, my partner and I are looking for our first property and I would really appreciate a little clarification on some points. Our current situation is as follows:

My partner is making a solo application and has a MIP of £81000 with a deposit of £9000. I won't be on the mortgage as I have the worst credit rating possible (uni cost me £11000 for 3 months - not a good idea!!) so we have a total budget of £90000.

What I can't find any straight forward answers for are:

How is the mortgage paid - does it go in to an account (like a current account) and then we pay that to the seller or is it done a bit like a student loan and get paid to the seller/seller's solicitor without us ever touching it?

If we get a mortgage for £81000 and have our deposit of £9000 and we get an offer accepted on a house for £70000 - do we only get a mortgage for £61000 or can we still get the extra £20000 to make improvements on the house - put in new kitchens, permitted development etc?

If we have to pay a deposit on exchange (eg the typical 10%), is that our cash £9000 or can that come out of the mortgage?

I understand alot of what people ask questions about - the merits of differnt surveys, the importance of doing full checks on builders, how to shop around etc but I just can't find the answers to these (most probably) basic and simple questions!!!

Many thanks in advance for any help

shonzyd

In reponse regarding the mortgage and how it gets paid, you do not see or touch any of the money. Its all done through the solicitors of the buyer and seller. The bank will give it straight to your solicitor and will then transfer it to the sellers solicitor etc etc. You then repay the bank the money for the mortgage (monthly). Thats my understanding of it anyway. Im sure one of the mortgage advisors on here will be able to explain more

holly_hobby

You provide your deposit to your conveyencer, whom will hold it in a Client fund waiting completion of the sale and pch process.

Upon completion your mortgage lender electronically transfers the mortgage amount to your conveyencer- whom subsequently transfers your deposit plus the mge funds, to your Vendors conveyencer (whom then transfer a sum equal to fully redeem the Vendors os mge (if any)).

Your mortgage is based on the ltv and the actual purchase price.

So, say you are buying for a £70k and want a mge for 61k - that would be the amount provided - borrowing 81k (the original marketed price which you negotiated down to 70k) would equate to 100%+ mge - which are not available.

If you wanted funds to redeocrate etc, you can not borrow on top of the pch price of 70k% or even 70k itself (save for the couple of 100% schemes on offer), so instead (LTV and permitted mge borrowings permitted), you would instead retain part of your deposit/use other capital for this purpose - but that woudn't be possible on the figs to hand.

Your monthly mortgage repayment will be taken by ddm from your nominated bank.

Survey's

Basic - is the cheapest and less detailed option, and is for the benefit of the mortgage lender. (I would suggest only really appropriate in detail, and if other surveys are affordable, for a new build property). As if there later appears a defect that the basic survey didn't have to review under its remit, you are on your own with regards to remedy. Whilst saying that, the surveyor, if he does spot any signs of serious issue i.e movement or evidence of damp, would still note this and request suitable reports such as that of a Structual Engineer or Damp & Timber specalist. You don't normally receive a copy of a basic survey as it is for the lenders benefit only.

Homebuyers - is the middle option, and whilst not as detailed as a full structure survey, provides a much more thorough evaluation of the property than a basic survey.

As such, it is not ordinarilly reqd by the lender as pre-requisite to lend, but they can request one in certain case.

I would always recommend a homebuyers over a basic (where affordable), as it is for your benefit (so you have the protection of the surveyors indemnity insurance for any errors), whilst giving piece of mind (all things being equal), that any relevant issues will be picked up by the survey and revealled, which may also put you in a stronger bargaining position with the Vendor regarding repairs/works reqd. And if nothing else should certainly alert you to any issues to hand (that otherwise may not be revealled under a basic survey). As you have instructed the HB - you will recieve the survey details.

Full structural - this is the belt and braces of surveys, is the most thorough and accordingly is the most expensive. Again, if affordable take it over a HBs (due to its thoroughness), if not, it certainly should be recommended as necessity for any HNW purchase and/or old property - due to the obvious issues and resulting cost of later remedy, if undetected at survey stage. Again, under a FS you will recieve the survey for review.

Hope this helps .. any more qs just shout

Holly x

mrsbmartin

Thanks for the replies. I had suspected that we couldn't use the extra money from the MIP figure if we managed to get a cheeky offer on a house accepted but DH insits (and still insists) that Natwest have told him exactly that. I'm thinking they have maybe told him he can have a loan for the work and then they would consolidate that loan on to the mortgage? Hmmmm...not sure - I guess I'll just have to go to a meeting with him and hear it for myself.

Thanks again!

holly_hobby

If the actual agreed purchase price is 70k (and its not a discounted family purchase), then thats what the max survey and mortgage LTV will be based on, and not any other figure. (I confirm that this comment is based on my role as a mortgage professional if that helps).

Possibly the NWest indvidual are talking about a secured loan a little while after completion ... or more likely your parnter has mis-understood how mortgage LTVs work.

Hope this helps

Holly

mrsbmartin

Hmmm...I'm guessing that he maybe has mis-understood. The only thing that makes me question it is that he says he asked them outright if he would be able to use the excess funds to 'do-up' a house that he managed to get under budget. And then of course there are my beloved property programmes....Kirsty & Phil "We've found you this house for £300,000 when your budget is £350000 so there's loads left in the budget to do that kitchen extension". How does that work??!! DH says that Natwest said something about house development (or something to that effect) and that I'm worrying over nothing...that he hasn't got it wrong basically!

The whole crux of the issue is we have found a house that could be really good for us, in the village we currently live in where prices and the investment are about as secure as they could possibly be, but it needs work (it was lived in by the same family for about 60 years and not redecorated in that time EVER!). It is on for £90000 but we think with some super tough negotiating we could get it for £70-80k. The hope was we could fund the work required via the rest of the mortgage money but I just couldn't find any info on doing this (now I know why!). I'm going to get DH to make an appointment with the bank - just so I can see exactly what they are offering.

Thanks again!

kingstreet

mrsbmartin wrote: »

"We've found you this house for £300,000 when your budget is £350000 so there's loads left in the budget to do that kitchen extension"

They've got enough cash in their deposit to keep some back and do the work that's needed from that.

A lender tells you the maximum you can borrow based on your income, but that will be limited by the purchase price or value of the property.

If your maximum borrowing is £200k and you want to buy a property for £150k, what the lender will lend you will depend on your deposit.

You could put down 10%, realistically the minimum, and have a 90% mortgage. If you have £50k in cash, that will leave you £35k left over to spend on the property, or whatever you want.

Alternatively, you might decide to put down all the £50k and have a mortgage of £100k, or 75% of the value of the property.

Regardless, a lender will lend you the lower of, what you can afford, or a particular percentage of the purchase price/value.

What you can't do is borrow more than the property is worth, if the lender does 100% mortgages, or its maximum percentage, even if your income says you could borrow more.

Conrad

mrsmartin, in the news since 2007, the Banking crash meant all borrowing over 95% of the current property value has become impossible.

Lenders cannot lend on hope value, i'e' what you think it would be worth after the work was done, because you might blow the development money on the horses. If they then had to repossess the property it would be worth less than the loan owing, and this would be compounded by the fact bitter evictees also wreck the house thus making it worth even less.

Your partner has his wires crossed.

holly_hobby

mrsbmartin wrote: »

Hmmm...I'm guessing that he maybe has mis-understood. The only thing that makes me question it is that he says he asked them outright if he would be able to use the excess funds to 'do-up' a house that he managed to get under budget.

They are assuming he means excess funds YOU already hold - not borrowing above the pch price on mortgage.

As stated, if this is not a Discounted Family/Connected or Right To Buy purchase, you can not borrow more than the agreed purchase price (or even 100% of it, bar the few current takers) - even if your income supports it, and the agreed purchase price is lower than the true market value - your mortgage application is solely and directly based on the actual pch price agreed regardless.

I can only think that DH has mis-understood OR the Nat West mge adviser has mis-interpreted what DH meant re the "extra funds" statement.

You could of course apply for a further advance (at least 6 mths from pch), and have the property re-valued at that time (which may take account of a higher market value, IF of course the current 81k pch price being asked for isn't already excessive in relation to the property and its condition (and/or you have managed to update the property to a degree that would positively affect the value) - of course any application for further borrowings will necessitate a status and affordabilty check.

Hope this helps

Holly

mrsbmartin

Hi all, thanks for the replies...I'm pretty sure I understand it all but I don't think DH does yet...will go to the bank and clarify it with him so he doesn't think I'm just peeing on the bonfire...the upshot is that we basically need to find a turn key because we won't have the cash to take on a project (which unfortunately means leaving the village - don't suppose anyone is familiar with the Rossendale valley?!).

Thanks All - the advice is much appreciated.

holly_hobby

Is the property habitable and mortgageable (ie functioning bathroom and kitchen, no damp, and has modern electric wiring i.e not the old 2 core material cable ?), and it is really just general decorative modernisation that is reqd ? (meaning that although not to your taste, you could live in and update room by room as funds permit).

My worry is if the property itself has been neglected and never updated, you may find that there will be a retention (full or partial) at least regarding a re-wire (which I suspect will be picked up on at survey, if as you say the house hasn't been touched for over 60 yrs) and possibly damp issues if no DPC in place.

What has the EA said about it .... ie how long has it been on the market, have there been any previous potential purchasers, who fell out of bed on it following survey ?

Hope this helps

Holly