Help! First time buyer - really not sure how.

SuperTed79

Hello,

They say bying a house is one of the most stressful things. Well, I'm stressed already and haven't even started!

What I am finding is that there seems to be an annoying assumption that we should all know exactly what to do and expect when buying a house. Almost as though, once you've bought your first property, don't let on to future new buyers how it's done. Yes there are guides and checklists of what to do. I've read them and they are really helpful. However, every now and then I think of a question and get embarrassed to ask as I feel like I should already know - but have no clue how I should know!

So my question I cannot seem to get my head around is this:

I've just read that when contracts are exchanged a deposit needs to be paid to the conveyancer. This deposit should be 10% of the value. Now I've just busted a gut to save 5% of the value (help to buy) to give to the bank in order to get my mortgage. Have I misunderstood - should I have saved 15%? 5% for my mortgage deposit and another 10% to hand over for the conveyancing deposit?

If this is the case, how are first time buyers EVER able to save enough to get going!!! This is not on any checklist I've seen! I know there are fees to pay but not ANOTHER percentage of the value!!

Do I have to have this deposit ready to hand over when contracts are signed or will it come from my mortgage?

Oh my God! This is ruining me already!!!

Hellllpppp!!!

libf

For a 95% mortgage you will put 5% down on exchange. (You never give this to the bank though, you give it to your seller, via your solicitor.)

If you had 20%, you would only need to put 10% down on exchange and the rest of completion.

In reality normally the deposit of the person at the bottom of the chain passes up the chain as the people higher up will be using equity as their deposit that isn't available until completion and so the % likely reduce the higher up the chain you get.

Hayleyg

Hey;

Me and my partner put an offer in on an house 15/08/15 and was accepted the same day! We then saw a mortgage advisor on the 17/08/15 and was told we passed the credit checks and affordability checks. On the 27/08/15 he submitted our application form to natwest and was told a valuation fee will go out my bank within the next couple of days. Surely if we was not eligible for a mortgage they wouldn't do the valuation? in terms of the valuation we are only lending £105,000 off the bank as we have put a deposit down. If the property gets valued at over 105k does that mean we get the mortgage? We have paid 111,000 in total but not sure if that matters as we are only lending 105k off the bank?

Help please

Thanks

libf

Some lenders underwrite first and then value, some value and then underwrite. The valuation fee being taken doesn't guarantee anything.

You need it to be valued at more than the mortgage amount. The bank will not lend 100% of the value, so if it's valued at 105k then you the highest mortgage you could get is 95% of that. You need a valuation of £110,500 plus to borrow £105k.

SuperTed79

libf wrote: »

For a 95% mortgage you will put 5% down on exchange. (You never give this to the bank though, you give it to your seller, via your solicitor.)

If you had 20%, you would only need to put 10% down on exchange and the rest of completion.

In reality normally the deposit of the person at the bottom of the chain passes up the chain as the people higher up will be using equity as their deposit that isn't available until completion and so the % likely reduce the higher up the chain you get.

Thanks for this.

So, for an example, if the property is 100K and I've saved REALLY hard to get a 5k deposit for my mortgage. In reality I should have saved even harder and got together 10k in order to have 5k for my mortgage and then another 5k for the exchange?

libf

SuperTed79 wrote: »

Thanks for this.

So, for an example, if the property is 100K and I've saved REALLY hard to get a 5k deposit for my mortgage. In reality I should have saved even harder and got together 10k in order to have 5k for my mortgage and then another 5k for the exchange?

No. That is the same 5k. You pay the deposit to the seller at exchange. Then at completion the mortgage company pay the remaining 95k to the seller, so in total the seller receives the full agreed price of 100k. (All via the solicitor, of course.)

The only thing that you pay to the mortgage company is any fees for booking/applying and for the valuation/survey. You don't pay them the deposit.

You do need ~£1k solicitor fees, valuation fee, stamp duty if it applies, etc on top of the 5k and preferably some left over. So 10k+ saved, just not all for the deposit, would be good.

EDIT: And in reality things can go wrong and you can end up paying fees multiple times; if there's a problem found on the survey and you pull out of that purchase, you will then need another survey when you find a new property.

mrginge

SuperTed79 wrote: »

Thanks for this.

So, for an example, if the property is 100K and I've saved REALLY hard to get a 5k deposit for my mortgage. In reality I should have saved even harder and got together 10k in order to have 5k for my mortgage and then another 5k for the exchange?

No.

You have 5k deposit.
You give that deposit to your solicitor.

Thats it.


Think about it. If what you've read was always the case then there would be no such thing as a 95% mortgage. Which there is.

SuperTed79

mrginge wrote: »

No.

You have 5k deposit.
You give that deposit to your solicitor.

Thats it.


Think about it. If what you've read was always the case then there would be no such thing as a 95% mortgage. Which there is.

Ohhhhhh..! So... When I go to the bank with my 5% deposit they say "excellent, we'll lend you the other 95%" THEN on completion I use the 5% I've saved to pay the deposit? Is that right?

libf

SuperTed79 wrote: »

Ohhhhhh..! So... When I go to the bank with my 5% deposit they say "excellent, we'll lend you the other 95%" THEN on completion I use the 5% I've saved to pay the deposit? Is that right?

No. You hand over your 5% deposit to the seller at exchange. Then the bank hands over the 95% mortgage at completion. You never give the bank the deposit, although you may have to prove that you have it with a bank statement or similiar.

SuperTed79

libf wrote: »

No. You hand over your 5% deposit to the seller at exchange. Then the bank hands over the 95% mortgage at completion. You never give the bank the deposit, although you may have to prove that you have it with a bank statement or similiar.

Thank you soooo much for clearing this up for me! It all
Makes complete sense now!

Thank you!

PasturesNew

Deposit: it is as much as has been agreed. e.g. if you've got 5% and your mortgage is based on that 5%, then it's 5%

It's JUST the %age. So just 5%. Not 15%, not 10%+5%. Just 5%.

Too many leaflets haven't had a rewrite for 30 years.

You have 5%, approach mortgage company who agree to lend you 95%
On the correct day you give that 5% to your solicitor (the funds have to clear, so a couple of days earlier than exchange date). They then ask the mortgage company for the other 95%.
When the solicitor is sitting with your 5% and the bank's 95% they hand it over to the seller's solicitor and that exact moment is called "completion" - and you get a phone call to say "you've completed, go and pick up the keys"

The 10% value is what you'd be liable for, as a minimum, should you not complete. If you exchange and don't complete, the theoretical 10% is what they keep. As a paper exercise, if you hand over 5% and exchange and don't complete, then you'd still owe the additional 5%... although you'd end up paying a lot more. The 10% is what the seller is guaranteed to get if you fail to complete. This is VERY rare. You'd have to either [1] be a loon to even THINK about trying to back out, or [2] die between exchange/completion for this to occur.