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What Happens After A Mortgage in Principle & Mortgage Offer?

A man and woman hugging as they hold the keys to their new home

What Happens After A Mortgage in Principle & Mortgage Offer?

A mortgage in principle is the first step to owning your dream home. It’s exciting, but also nerve-wracking because there are a lot of steps you need to take before signing on the dotted line. 

The following post will outline the procedures you can expect to encounter once you have received a mortgage offer or mortgage in principle – from how long offers take to complete to what happens if a mortgage falls through.

Mortgage Offer vs Mortgage Principle

There’s a difference between a mortgage offer and a mortgage in principle – and this difference is often one that instils confusion with new time borrowers. 

It’s important to remember that a mortgage offer is an official offer from a lender that assures a set amount of money for a particular property. On the other hand, a mortgage principle is an estimated amount that a bank or lender will offer you based on the financial information you have provided them with. 

A mortgage principle is excellent because it gives you an idea of your financial situation and how much you can expect to be paying back. But it’s important to remember the following before moving forward with a mortgage principle:

  • This is not an official mortgage offer
  • It’s not an official guarantee you’ll be able to borrow the said amount
  • Principles aren’t linked to a specific property
  • An agreement that you will take out a mortgage with a set lender

 

Is a Mortgage Offer Legally Binding?

A mortgage principle or mortgage offer is not a legally binding contract. While it’s pretty rare, the lender still has the right to withdraw. It’s what happens after the mortgage offer that becomes legally binding. 

Your solicitor will sort out all of the legal stuff involved in purchasing a new property, known as conveyancing. Conveyancing consists in putting together property exchange contracts, which usually takes around 8-12 weeks. During this process, you’ll be legally bound to buy the property.

 

Can You Change Property After Mortgage Offer?

Your bank will want to make sure that you’re a sound investment and that the property you are buying is sound. If you choose to change the property after receiving a mortgage offer, you’ll need to advise your lender.

The lender will need to reevaluate the property to determine the conditions of the mortgage offer. Banks are looking to keep the same loan to property value ratio. If you are looking to purchase a more expensive home and your mortgage offer was set to the highest limit, you might need to pay a higher deposit to secure the offer. On the other hand, a cheaper property will need to keep the same loan to property value so that the lender isn’t losing out. 

 

Time From Mortgage Offer to Completion

Given the steps needed to close the deal, you can expect the process from mortgage to the completion of the purchase to last around 1-3 months. However, this depends on how long your solicitor manages to get legal documents in order. 

Once you’ve received a mortgage principle, several steps will need to be taken for closing in on the house. You can expect to be dealing with many different documents, performing a lot of signatures and paying a couple of fees – but don’t worry, your solicitor will be taking care of all the paperwork.

 

Why Do Mortgages Fall Through?

Reasons mortgage financing falls through can be the buyer’s fault or the lender who pre-approved the mortgage. Understanding the reasons behind a failed mortgage helps you better understand what needs to be done to secure the deal. Below you’ll find the most common reasons for mortgages falling through. 

  1. Change in employment: Many lenders require you to have a solid job for at least two years – often with the same company. After that, most lenders will be okay with a slight change of employment, as long as it isn’t a drastic change in occupation or income.
  2. Negative impact on credit: The buyer must continue to pay bills and debts so that there isn’t room for drastic change, or a bad credit score. Failure to stay on top of finances will be a red flag for lenders.
  3. Additional debts: As a buyer, it’s essential to avoid taking on additional debt during the mortgage process. A higher debt to income ratio often causes mortgages to fall through.
  4. Changes in lender guidelines: It’s possible that a lender’s requirements for a mortgage might change, and you won’t be able to reach the requirements. 

 

What Happens If A Mortgage Expires Before Completion?

A mortgage in principle is typically valid for 30-90 days, but this can vary depending on the lender. But what if your mortgage expires before you’ve sealed the deal? In most cases, it won’t be an issue if you give your lender notice. They deal with these kinds of problems regularly, so they understand that you may experience some delays when purchasing a property.

If you’re aware of the delays beforehand, your solicitor will be in contact with the lenders. When lenders are given a decent amount of notice, they can easily extend the mortgage offer. 

If your mortgage offer expires before notice, you’ll need to apply for a new mortgage. However, you won’t need to worry too much about the process as all of your details and documents will be in the underwriter’s possession. 

If your current financial situation hasn’t changed, you’ll be more than likely to receive a new mortgage offer. 

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