The House Buying Process – a Guide for First Time Buyers – Part 4

In the last part of this guide, we will look at what happens after the valuation has been carried out. We will assume that the property “valued up” and no significant problems were detected.

Mortgage Offer
Following receipt of the valuation report, the lender will check that all other aspects of your mortgage file are in order. In most cases, the lender will have already written away for the various references which will be needed to back up what you have put on the application form, but it is at this stage that any final questions will be asked and checks made. It is quite normal for a lender to carry out a further credit check at this stage, just to check that matter are as they were when the application was made. Assuming that all is in order, the file will be “passed for offer”, which simply means that the formal paper offer will be produced and sent to your solicitor.

In fact, it is normal for three copies of the offer to be produced. The main copy is sent to your solicitor, along with a set of additional “instructions” detailing how the lender wants matters dealt with and any additional requirements which are needed. An example of this might be an instruction to the solicitor to ensure that the lenders interest is noted on a buildings insurance policy. The second copy is sent to the applicant themselves, sometimes with other paperwork such as a mortgage deed for signature. The third copy will be sent to the intermediary.

A good intermediary will check their copy of the offer carefully, and will bring to attention any instances where the offer differs from the application. Sometimes, it can take several attempts for some lenders to get the offer exactly right, and a good broker can really make a difference at this time. Do remember, however good your broker or solicitor, and however much faith you might have in them, you must make sure that you fully understand every aspect of your mortgage offer. If you are in any doubt, ask.

Signing the Contract
As soon as your solicitor has received and checked your mortgage offer, and received and checked all the necessary searches (unless already provided as part of a Home Information Pack) he will arrange a meeting with you. During this meeting, the solicitor will explain to you the contract that has been drawn up between himself and the sellers’ solicitor, and will also explain the terms of the mortgage offer, and any other legal aspects associated with the sale. It is very important that you understand everything that you are told, and therefore you must not let the meeting move on until you are absolutely satisfied. When you are satisfied, your solicitor will ask you to sign the contract, and at this stage will also ask you to give him a check for the amount of the deposit. Solicitors have to keep your money separate from their own, and will therefore pay your deposit cheque into their “clients” account for it to clear (normally five days). In practice, contracts are standard documents and vary little from one sale to another. Because of this, sometimes a solicitor will send you the contract and other papers to sign through the post, especially if you have chosen a solicitor who is not based locally. This is not necessarily a disadvantage, but many first time buyers prefer to instruct a local solicitor who they can go and see.

Exchange of Contracts
In the same way as you will have met up with your solicitor and signed a contract, the seller will have met up with their solicitor and signed an identical contract. This means that as soon as your deposit cheque has cleared, the solicitors will be able to exchange contracts. This is a very important part of the process, as up until this point, either the buyer or the seller is able to pull out for any reason at all, and without explanation, and without having to re-imburse the other for their abortive expenses. As soon as contracts are exchanged, both the buyer and the seller legally have to go through with the sale.

In the past, exchange of contracts was a physical exchange during which the two solicitors swapped over the two contracts. Nowadays, exchange is carried out over the telephone, and in future will almost certainly be accomplished via some form of electronic system. At the time the contracts are exchanged, the deposit will be paid by your solicitor to the sellers solicitor and deposited in the sellers solicitor’s “clients” account. The deposit is never given to the seller, and is always held by their solicitor. At the time of exchange, a date is normally set for “completion” when you will move in.

Insurances
Because you are legally bound to complete on the purchase of the property, it is essential that any insurances are put into force at the time of exchange of contracts. This includes both buildings insurance, and any life assurance that you are taking. If you get run over by a bus after exchange of contracts, the administrators of your estate may still need to complete the purchase. As it is unlikely that the mortgage lender will honour the offer (after all who will pay the mortgage), you will need the proceeds from the life assurance instead.

Completion
Completion is the term given to the last stage of the house buying process and is the time at which the property is fully paid for and you can get the keys and move in. A few days before the date of completion, your solicitor will have “requested funds” from the mortgage lender, and they will have transferred the amount of the mortgage to the solicitor. If there are any charged which are “paid on completion”, these will have been deducted from the mortgage before it was sent to the solicitor. The solicitor will normally deduct his charges as well, and therefore you may have an additional balance to pay in this respect. If so, the solicitor will have told you in good time to ensure that he had cleared funds from you in time for completion. On the day of completion the balance of the money required to buy the house will be sent from your solicitor to the sellers’ solicitor and you will be able to get the keys and move in.

Do remember that interest will be charged on your mortgage from the day the funds are sent to the solicitor, not from the day you move in.