In this brief guide, we will discuss what it means when a mortgage in principle is referred.
What does it mean for a mortgage in principle to be referred?
When a mortgage in principle is referred this simply means that the mortgage underwriter simply wants to have a more detailed look at your mortgage in principle application before deciding on if to approve your mortgage in principle or decline your mortgage in principle application.
What happens when you make a mortgage in principle application?
A mortgage in principle being referred is not a bad thing, in fact, it is simply due to how mortgage in principle applications are evaluated by most mortgage lenders.
When you submit your mortgage in principle application this is either evaluated using automatic computer systems or through manual underwriting done by an underwriter.
When you make a mortgage in principle application you will usually submit your:
Date of birth
Desired mortgage amount
Your credit score
Your credit score is a very important factor and a mortgage lender may refer your mortgage in principle application if you have bad credit which needs further explaining.
Bad credit could include:
- A county court judgement
- A debt management plan
- Missed credit repayment
- Payday loans
- Mortgage default
- Individual voluntary arrangements
Manual underwriting vs automated
Most mortgage in principle applications are done via automatic decision-making systems and then there are very few which go through manual underwriting except they are referred by the automated decision systems.
Automated underwriting is done when the mortgage lenders computer systems match their lending criteria with the information you have supplied in your mortgage in principle application.
Manual underwriting is when your mortgage in principle application is looked at by a manual underwriter.
This can sometimes have its benefits as it means you are able to supply further documents to the mortgage lender and ensure your mortgage
Use a Government scheme
Government schemes help you reduce the amount of mortgage deposit you may need to put down, reduce the price of the property or create a structure that increases your mortgage affordability much sooner than it would have been.
Some of these include first-time buyer government schemes whilst others in this list are accessible to you even if you are not a first-time buyer.
Government schemes are not available to you if you are getting a buy to let mortgage.
The Government schemes include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire– similar to the above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
Use a mortgage broker for your mortgage in principle
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.
This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.
In this brief guide, we discussed what it means when a mortgage in principle is referred.
If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.