House Buying Guide: Steps to Buying a House
There are two ways in which a house can be purchased: (a) outright by paying the full purchase price, or (b) by arranging a mortgage and spreading the payment over a period. There are two kinds of mortgages: (1) private mortgages entered into by agreement between the two persons concerned, (2) by arrangement with a building society or insurance company. In certain circumstances the purchase price may be borrowed from a bank, but there is still a form of mortgage involved, by which the property becomes the security for the loan.
In the first place the purchase price should be agreed with the person offering the house for sale, and if the inspection reveals hidden faults the price finally agreed may differ from the one first offered. After the purchase price has been agreed, the question of contract arises (a contract being a form of legal agreement). If you don’t know much about the drawing up of contracts — and very few people do — it is always wisest to employ an expert, in this case a solicitor, who will conduct the business for you safely, legally and expeditiously.
The information given previously is intended as a general guide to house purchase, and does not deal with every aspect of the transaction or with sets of individual circumstances. One thing is very clear — the buying of a house is something that must be approached with common sense, and in almost every case it is wise to consult a solicitor before signing on the dotted line.
The majority of people purchasing small houses do so on mortgage through a building society or on a private mortgage. It is advisable to know something of the main points arising from mortgage according to the law, before committing yourself. These will of course be explained to you by the solicitor consulted, but some general knowledge of the subject will be useful.
The person borrowing the money for house purchase is known as the mortgagor; the person or the society which lends the money is known as the mortgagee. The mortgagor has certain rights which should be included as clauses in the mortgage deed, which is the legal form of agreement which the solicitor will draw up, between the two parties concerned. One of the clauses should stipulate that the mortgagee cannot claim possession of the property unless the mortgagor defaults in repayment of the loan. This means that the occupier is granted the right of sole tenure so long as the periodical payments are kept up on the dates on which they become due. In the case of a loan from a building society, the society concerned becomes the mortgagee — not the original owner of the house, who is paid in full by the building society. Until payments are completed the society is the true owner of the house, the property being used as a form of security against the loan. Should there be serious default in the repayments the mortgagee has the right to resell the property to recover the unpaid part of the loan, but even in these circumstances the mortgagor has some rights; the mortgagee must offer the house at a fair and reasonable price, and any surplus arising from the sale must be paid to the mortgagor. This sort of situation hardly ever arises from house purchase through a building society, but in can from a private mortgage.
If the purchase is arranged through a building society, the mortgagor is always urged and strongly recommended, by the society, to insure against default through accident, illness or death. The premium is paid by the mortgagor, and in the case of a long illness the insurance company would meet the mortgage repayments as and when they became due, thus relieving the family of a great deal of worry. In the event of death the insurance company would pay the balance of the mortgage and the house would become the property of the heirs of the mortgagor. If, however, the default is through the negligence of the mortgagor, the mortgagee has the right to take repossession of the property.
A bank or building society will advance an agreed percentage of the purchase price of the property, the difference being paid at the outset by the mortgagor in the form of a deposit.
The mortgage is repaid to the building society in equal monthly instalments spread over a number of years, the usual maximum period being 25 years. The first step in arranging a mortgage through a building society is to apply for a form of application. It is usual with most of the building societies to pay the inspection fee at the time of submitting the application form, the fee being paid to cover the expense of the society in employing a valuer. The inspection fee will vary according to the value of the property concerned, and the exact amount of the fee will be given on application to the local office of the society with which you wish to do business.
After inspecting the property and obtaining a valuation report the society will send you a form constituting an offer of advance. This and all accompanying forms must be very carefully read and it is advisable to engage a solicitor to deal with the matter from this point onwards. The solicitor will then explain any points not clear to you, and the offer of advance form is then signed and returned to the society. The mortgagor is responsible for the legal costs arising from an application to purchase, also the society’s solicitor’s fees and the stamp duties. These vary, according to the circumstances of each case but your solicitor will be able to tell you exactly what cost will be involved.
The monthly repayments are in respect of the capital loan, plus compound interest on the capital. By agreement with the society you can at any time pay amounts in addition to the agreed monthly payments, so as to clear the loan before the final date. In which case the building society will make an adjustment of the interest on the balance of the capital loan still unpaid.
It is often not appreciated that the mortgagor who has entered into an agreement with a building society may sell the house at any time he wishes, provided the full balance of the loan is paid to the society from the sale money received. In cases where the new would-be purchaser is acceptable to the society it can be arranged to transfer the mortgage, but only the building society can decide on the suitability of the new purchaser.
A second method of house purchase is to obtain a loan from a bank or private person, your solicitor or bank manager can often give an introduction here. Mortgages of this sort are often charged at a slightly higher rate of interest than the building society charges, and for this reason they should always be handled by your solicitor, who will ensure that you do not pay a rate that is higher than reasonable.
No matter by which means the mortgage is obtained, the purchaser will find that he is obliged to insure the property for fire. It is as well to remember that your responsibility for insurance commences from the signing of the contract. Therefore it is necessary to obtain coverage before you sign the contract.
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