When buying a home, two essential steps often come into play: the house survey and mortgage approval. Understanding how these processes interact can help you navigate the path to homeownership with greater confidence. This blog post will delve into the connection between house surveys and mortgage approval, explaining why each is crucial and how they impact one another.
What is a House Survey?
A house survey is a thorough inspection of a property’s condition. Conducted by a qualified surveyor, it aims to identify any structural issues or defects that might affect the property’s value or require future repairs. There are several types of house surveys, including:
- Condition Report: The most basic survey, highlighting urgent defects and potential legal issues.
- HomeBuyer Report: A more detailed survey that includes advice on repairs and maintenance.
- Building Survey: The most comprehensive survey, providing an in-depth analysis of the property’s condition.
What is Mortgage Approval?
Mortgage approval is the process through which a lender assesses your financial situation and the condition of the property that you intend to buy, deciding whether to lend you the money needed to purchase the home. This process involves evaluating your credit score, income, debts, and the property’s value.
How a House Survey Affects Mortgage Approval
1. Assessing Property Value
One of the primary reasons lenders require a house survey is to ensure the property’s value justifies the loan amount. The survey provides an objective evaluation, helping the lender determine whether the property is worth paying the price you’ve agreed to pay. If the survey reveals that the property is worth less than the purchase price, the lender might adjust the mortgage offer or decline it altogether.
2. Identifying Structural Issues
A house survey can uncover structural problems or defects that might affect the property’s safety and livability. Significant issues, such as foundation problems, roof damage, or severe dampness, can make the property a risky investment for both you and the lender. If the survey reveals such issues, the lender might require these to be addressed before approving the mortgage or might offer a reduced loan amount.
3. Negotiating Power
If the house survey uncovers issues, you and mortgage broker can use this information to renegotiate the purchase price with the seller. This can lead to a lower price, potentially making it easier to secure mortgage approval. In some cases, the seller might agree to fix the problems before the sale, satisfying the lender’s requirements.
House Survey And Mortgage Approval: Steps to Take After a House Survey
1. Review the Survey Report
Carefully read the survey report to understand the property’s condition. Note any issues highlighted by the independent survey/or and consider their potential impact on the property’s value and livability.
2. Discuss with Your Lender
Share the survey report with your lender, especially if significant issues are identified. Discuss how these and structural survey findings might affect your mortgage approval and what steps you might need to take.
3. Negotiate with the Seller
Use the survey report as a negotiation tool. You can ask the seller to lower the asking price, or make necessary repairs before finalizing the sale. Clear communication with the seller is essential to reach an agreement that satisfies both parties.
4. Get Repair Estimates
If the survey identifies issues that need addressing, obtain estimates from contractors to understand the cost of repairs. This information can help you negotiate with the seller and plan your budget.
What is Mortgage Valuation?
A mortgage valuation is an assessment conducted by a professional valuer on behalf of the mortgage lender. Its primary purpose is to determine the market value of the property you intend to buy, ensuring that it adequately covers the amount of the mortgage loan. Unlike a detailed house survey, a mortgage valuation is usually a brief inspection that focuses mainly on the property’s value rather than its condition.
Why is Mortgage Valuation Important?
1. Lender’s Security
For mortgage lenders, the type of survey property serves as security for the loan. The valuation helps the lender assess whether the property is worth the loan amount, reducing the risk of lending more money than the property is worth. If the borrower defaults on the mortgage, the lender needs to be confident that selling the property will cover the outstanding loan.
2. Borrower’s Assurance
While the primary purpose of the mortgage valuation is to protect the lender, it also provides assurance to the borrower. Knowing the property’s value helps you avoid overpaying and making a sound investment through informed decision made.
The Mortgage Valuation Process
1. Lender Arranges the Valuation
After you apply for a mortgage, the lender arranges for a valuation to be conducted by a qualified surveyor. This step usually occurs after the lender has reviewed your financial situation and made an initial mortgage offer.
2. Inspection of the Property
The valuer visits the property to carry out a brief inspection. Unlike a detailed survey, this inspection is typically quick and focuses on factors that affect the property’s market value, such as its location, size, condition, and comparable property prices in the local market for the area.
3. Valuation Report
The surveyor produces a valuation report, which includes the property’s estimated market value. This report is sent to the lender, who then does down valuation and decides whether to proceed with the mortgage offer based on the valuation.
What is a Mortgage Lender?
A mortgage lender is a financial institution or individual that provides loans to borrowers for the purchase of real estate. The lender provides the funds necessary to buy a home, and in return, the borrower agrees to repay the loan with interest over a specified period. Mortgage lenders can include banks, credit unions, mortgage companies, and private lenders.
Types of Mortgage Lenders
1. Banks
Banks are traditional lenders offering a wide range of financial services, including mortgages. They often have established reputations and offer various mortgage products, including fixed-rate and adjustable-rate mortgages.
2. Credit Unions
Credit unions are member-owned financial institutions that often offer competitive mortgage rates and personalized service. Membership is typically required, but it can result in lower fees and better customer support.
3. Mortgage Companies
Specialized mortgage companies focus solely on home loans. They may offer a broader range of mortgage products and have more flexibility in terms of loan options and terms compared to traditional banks.
4. Online Lenders
Online mortgage lenders operate primarily through digital platforms, offering convenience and often lower overhead costs. They can provide quick pre-approvals and streamlined application processes.
5. Private Lenders
Private lenders are individuals or companies that offer loans outside traditional banking systems. These lenders can be more flexible but may charge higher interest rates and fees.
What is a Mortgage Valuation Survey?
A mortgage valuation survey is an assessment carried out by a professional valuer, typically on behalf of a mortgage lender. Its primary purpose is to determine the market value of the property you wish to buy. Unlike a detailed house survey, a mortgage valuation survey is brief and detailed report focuses mainly on the property’s value rather than its condition.
Purpose of a Mortgage Valuation Survey
1. Lender’s Security
The main objective of the valuation is to protect the lender’s investment. By ensuring that the property’s value justifies the loan amount, the lender can assess the risk involved. If the borrower defaults, the lender needs to be confident that selling the property will cover the outstanding mortgage balance.
2. Affirming Fair Market Value
For home buyers survey however, the valuation provides reassurance that the property’s price aligns with its market value. This helps prevent overpaying for a property and ensures you make a sound investment.
Mortgage Valuation vs. Home Survey
It’s important to distinguish between a first mortgage survey or valuation survey and a home survey:
- Mortgage Valuation Survey: Focuses on assessing the property’s market value for the lender’s benefit. It is usually a brief inspection.
- Home Survey: A more detailed inspection of the property’s condition. It identifies potential issues that might require repairs and provides a comprehensive report for the buyer’s benefit.
What is a Mortgage Provider?
A mortgage provider is a financial institution, mortgage company, or individual that offers mortgage loans to borrowers for purchasing or refinancing real estate. Mortgage providers include banks, credit unions, mortgage brokers, and private lenders. They assess your financial situation, offer loan products, and determine the terms of your mortgage.
The house survey and mortgage approval processes are closely linked, each playing a vital role in ensuring a successful property purchase. Understanding how a house survey affects mortgage approval can help you make informed decisions and navigate the home buying process more smoothly. By carefully using home surveys, reviewing the survey report, discussing it with your lender, and negotiating with the seller, you can address potential issues and move closer to securing your dream home.
FAQs
- What is the purpose of a house survey?
- A house survey provides an assessment of a property’s condition, helping identify any potential issues before purchase.
- Do I need a house survey for a new build?
- While new builds are generally in good condition, a survey can still highlight any defects or construction issues.
- Can I negotiate the house price based on survey findings?
- Yes, significant issues found in a survey can be used to negotiate repairs or a reduction in the purchase price.
- How long does a house survey take?
- The survey duration varies but typically takes a few hours, depending on the property size and type.
- Who pays for the house survey?
- The buyer usually pays for the house survey, although some mortgage lenders may offer it as part of their service.
You can find more information on our website, Andrew Pridell Associates