Right of First Refusal and The Mortgage Process

Thinking about buying a house without actually having your old house purchased off your hands? We don’t blame you. However, when you really find your dream home you might feel like there’s just no way that you can pass it up. On the other hand, there might be life changing events that really do force you into getting another house. If you’re in a ripe real estate market, you might be able to pull off a deal where you can enter a purchase offer on a new home while entering in a contingency clause that states the deal is only good if your home actually sells.

Now, there is a time and a place for every type of real estate deal that you can think of. These types of sales with contingency agreements got some bad press, but as mentioned — not everything is right of every situation. It’s better to really step back and think about everything that you have going on and then make the decision to go with adding in the contingency. For example, if you don’t have your house listed, it’s going to be hard to really have your potential seller accept your offer. On the other hand, if you already have the house on the market and you can demonstrate that there are several offers available to you, then you will definitely get a lot more done.

However, before you get too excited about the possibility of “reserving” the house of your dreams this way, you need to consider the other outcome: someone else might think it’s their dream home, too. And they already have the down payment and the financing without having to worry about trying to afford two mortgages at the same time.

This is where you go with having a right of first refusal. It basically gives you 72 hours to take action before the seller has the right to demand cancellation of the contract and give you back your earnest money deposit.

You have a few options in this case when you get the 72 hour notice to perform — like getting a bridge loan. A bridge loan is a pretty high interest, high point financing option that can give you the down payment for the house when you don’t have any other source.

Our thoughts? Skip the bridge loan and see if you can borrow the money from your parents or your retirement — both sources are easier and in the case of your retirement, it’s a qualified loan!

Fees associated with buying a house

Many people, especially first-time buyers, underestimate the fees and charges associated with buying a house. If they’re buying a house with a mortgage loan, they’ll need to make a down payment, usually 10% of the purchase price, when they exchange contracts with the vendor. They’ll also need to pay a mortgage deposit, which is the difference between the purchase price and the mortgage loan they’ve secured, when they complete the sale.

Valuation and Survey Fees

All mortgage lenders require a basic valuation of a property to make sure that it’s worth the purchase price and to prevent fraud. The cost of a basic valuation varies according to the value of the property and from lender to lender; indeed, some lenders waive the valuation fee altogether as an incentive for borrowers to take out a mortgage with them. Typically, however, borrowers can expect to pay at least 100 for a basic valuation.

Borrowers should also consider a more detailed survey, such as the homebuyer’s report or a full structural survey, to uncover any structural defects. More detailed surveys can cost up to 1,000 plus VAT at 20%, but these offer borrowers the peace of mind that comes from knowing they should not have to pay for major structural repairs after they move in.

Conveyancing and Legal Fees

Conveyancing is the branch of the law that deals with the transfer of legal ownership. Property buyers need to secure the services of a solicitor or licensed conveyancer to handle the legal side of buying a house. Once again, conveyancing fees vary from solicitor to solicitor, with some charging a flat rate and others a percentage of the purchase price of the property (typically up to 0.5%). Legal complications, local authority searches and water authority searches can push conveyancing and legal fees up to 1,000 or more, depending on the value of the property.

Stamp Duty Land Tax

All properties valued at 125,000 or more 150,000 or more in areas designated as “disadvantaged” are liable for Stamp Duty Land Tax. There are three bands of liability: between 125,000 and 250,000, property buyers pay 1% of the purchase price; between 250,000 and 500,000, they pay 3%; and over 500,000 they pay 4%. So, for a typical UK property valued at 162,900, the buyer would pay 1,629 in Stamp Duty Land Tax.

Land Registry Fee

The Land Registry maintains the Land Register, which documents the evidence of ownership of land and property in England and Wales. The Land Registry imposes a fee on those who need to transfer the registration of ownership from one person to another.

Other Fees and Charges

Some mortgage lenders require borrowers whose loan-to-value ratio in other words, the percentage of a property that’s mortgaged is above 75%, 80% or 90% to pay mortgage indemnity insurance. Other fees and charges that may not be immediately apparent are removal fees, buildings and contents insurance, home insurance and charges for disconnecting and reconnecting services, such as electricity and gas, water and telephone.