Thursday 11th April 2024
(information contained within was correct at the time of publication but is subject to change)
After finding the ideal property, homebuyers are eager to get the process in motion that ends with them moving into their new home. However, before doing so, now commences the crucial yet intricate stage of securing a mortgage offer. But what is a mortgage offer? In this guide, our mortgage advisors will unpack the intricacies of a mortgage offer, enabling you to navigate this phase of your home-buying journey with confidence.
What is a Mortgage Offer?
A mortgage offer is, essentially, your chosen mortgage lender’s conditional approval to finance your property purchase in the form of a formal written document. This offer will contain your personal details as well as the terms and conditions of your mortgage deal. There will also be information regarding the property you are purchasing.
Important details that will be covered in your mortgage offer include but are not limited to:
Loan Amount – This is the full sum of money the lender will lend you towards the purchase of your property.
Interest Rate – The interest rate as part of the chosen benefit period as well as the revisionary rate after your benefit period.
Mortgage Term – How long your mortgage deal will last and the overall term of the mortgage.
Conditions – Things that must happen for you to be able to access the funds. For example, the requirement to obtain building insurance or to repay debts that you have specified would be repaid.
How to Receive a Mortgage Offer
Whether you’re a first-time home buyer or are searching for your next property, the process of receiving a mortgage offer is the same. It starts with a mortgage application where your chosen lender uses affordability checks to ensure you can afford the mortgage you are applying for. Here, such things as your credit score and credit utilisation will be analysed.
Before a mortgage offer is received by you, the lender will also complete a valuation of the property you are hoping to purchase. The purpose of this is to assess that the property is being purchased at market value and is suitable security for the lender/mortgage.
Once your mortgage application has been received and approved, you will be sent a mortgage offer.
Mortgage Offer Vs Agreement in Principle
Being able to distinguish a mortgage offer from a mortgage in principle is crucial. The two can be misconstrued as being the same thing, however they serve different purposes.
What is a mortgage offer? As we have discussed, this is an offer made to a homebuyer/homeowner by a lender. This will detail how much your lender is willing to lend and will set out the terms and conditions of the offer.
What is an agreement in principle? Based on a preliminary assessment of your financial situation and creditworthiness, this serves as an estimation of the potential loan amount a lender may be willing to lend. The most important thing to understand is that this is not a guaranteed offer.
A mortgage in principle (MIP) or agreement in principle (AIP) or decision in principle (DIP) is a useful tool as although not binding it can outline how much you could borrow depending on whether your full application meets the lender’s requirements. Armed with an AIP, hopeful homebuyers can search for suitable properties and budget accordingly. This also shows estate agents that you are taking proactive steps and are keen to buy which can speed up the whole process of buying a home.
How Long is the Mortgage Offer Valid?
There is no defined length of time that a mortgage offer has to last. The typical period ranges from 3-6 months, but how long a mortgage offer lasts will vary between lenders. The reason for this fluctuation is down to lenders and their view of when the validity of the offer started – some use the date of your mortgage application being submitted as the start point and others use the date of your mortgage offer.
This time is valuable to homebuyers as it allows you ample time to progress with your solicitors and other aspects that should be addressed, such as securing building insurance and fulfilling any conditions imposed by your lender via your mortgage offer.
Can a Mortgage Offer Be Extended?
If unforeseen circumstances arise or you simply need more time to decide whether to accept or decline a mortgage offer, then you can ask for an extension. Be advised that you should discuss the possibility of an extension with your broker or lender as early as possible as lenders will require some time to action this.
It’s also important to note that your lender has no legal requirement to honour such a request, especially if the offer has since expired. If a mortgage offer extension is agreed, this is likely to be extended by 1 month. However, if the reasoning behind you wanting to extend your mortgage offer was due to circumstances outside of your control, you or your mortgage broker could argue this and a lender may be able to be more flexible. This will vary from lender to lender.
There is also the possibility that an extension of your mortgage offer could result in revised terms and conditions and you may face additional costs.
Can a Mortgage Offer be Withdrawn?
While it is rare for a mortgage offer to be withdrawn, it is possible. There are a few circumstances that may lead to a lender retracting a mortgage offer. These are as follows but are not limited to:
Changes in Your Financial Situation – If your financial situation changes/deteriorates from the time the mortgage offer is sent to the time it is completed, a lender may be prompted to reconsider their offer. This could happen if you lose your job, change to a lower-paying job or your financial commitments change, such as financing a car.
Property Issues – If issues with the property are revealed during the conveyancing process, this may lead to the mortgage offer’s withdrawal.
Mortgage Application Concerns – If your mortgage application is revealed to be inaccurate or missing vital information, a lender may retract the mortgage offer.
Accepting The Mortgage Offer and Moving Into Your New Home
If all goes according to plan and you are happy and comfortable with the terms and conditions of your mortgage offer, the acceptance process will begin. Working with your solicitor and mortgage broker, this usually entails signing the mortgage offer document and returning it to the lender.
With the offer accepted, much of the responsibilities now fall to your solicitor who will take on crucial tasks, such as facilitating the exchanging of contracts. After these final actions have been performed, you will be handed the keys to your new home.
The Invaluable Role of a Mortgage Broker
Now that we have answered What is a mortgage offer? We wanted to end this article with how a mortgage broker can serve as a valuable asset during the mortgage offer phase.
Award-winning mortgage brokers, Norcutt Mortgages, for example, help their clients in several ways, leading their clients to receive and accept a mortgage offer that is ideal for them. Here’s how a mortgage broker could assist you:
Mortgage Offer Clarity – Your chosen broker can help by deciphering any mortgage offer you may receive, ensuring you understand the terms and conditions.
Negotiation With Lenders – If rates change during this process, a broker can renegotiate your mortgage product/rate with the lender.
Ease of Communication – As we have highlighted in this article, there are several parties involved in the mortgage offer process. A mortgage broker can liaise between you, the lender, and the solicitor.
Answered: What is a Mortgage Offer?
A mortgage offer symbolises a significant milestone in your journey to homeownership, and we hope this guide has helped to demystify this part of obtaining a mortgage. Remember, if you’re still unsure of the mortgage offer phase or feel as though you may need a hand, a reliable mortgage brokerage can be your trusted advisor who is by your side throughout the entire process.
If you’re ready to secure a mortgage offer that is perfect for you, reach out to our team and let’s see how we can help you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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