Buying a home can be confusing. To get the right information and make sure the process is as straightforward as can be, it is important to listen to the right people.
We regularly talk to customers who say things like, ‘Oh I didn’t know that’, ‘I thought it worked like this’, or ‘I wish I had known that sooner.’ That is the reason we have put together this short article to take some of the confusion away.
1. AIP over DIP
In the Financial Services industry, there tends to be a lot of acronyms, and the main one that our co-owners find confusing is the difference between a Lender’s DIP (Decision in Principle) and Co-Ownership’s AIP (Approval in Principle).
A Decision in Principle is an estimate from your mortgage lender of how much they’re willing to lend you for your mortgage. However, it’s important to remember that the figure given in a DIP isn’t guaranteed and can be subject to change or be withdrawn once you submit your full application. Remember, at this stage in the process, the lender hasn’t performed a credit check or requested any supporting evidence which might impact their final decision. This can only be completed once you have sale agreed a property.
On the other hand, a Co-Ownership Approval in Principle (AIP) is designed to give you a clear commitment on how much investment we can make to support your home purchase. To receive an AIP from Co-Ownership, you will have to complete an application, provided your supporting documentation, had a credit check performed by our credit reference agency Experian (without impacting your credit file) and had a full affordability assessment carried out by our assessment team.
Once you receive your AIP from us you can go house hunting knowing that Co-Ownership will help you to buy a property up the value stated in your AIP.
We do it in two stages to give our customers a strong position when they go house hunting knowing that they have our support. Feedback from our customers is that it provides them with a better level of security by knowing their budget and vendors and agents like it because they know that the person is approved by Co-Ownership.
Once you are sale agreed on a home just tell us upload the details and pay your property fee and we’ll get on with assessing the condition and value of the home. We know that £500 is a big fee to pay for this but for that you get a detailed property assessment carried out of the home by an RICS valuer and a significant contribution to your legal fees (Co-Ownership covers over 50% of these costs).
2. Don’t spend your money on repairs
We’ll admit it, we love watching home improvement shows on TV and get excited about seeing the ‘grand reveal’ at the end of the programme. However, in reality we know the spiralling costs and frustration at having to renovate a property just to make it liveable. That is why we ask that your chosen property meets our property criteria, which really means that it is in a good state of repair. We aren’t worried about the colour of the bathroom (we hear avocado green is making a comeback), it’s things like electrics, damp, and structural issues, the expensive things to fix.
We’re not being picky just making sure that your home is of a good standard and won’t cause you any issues if and when you want to move on. Remember, in addition to mortgage and Co-Own rent, you need to be able to afford the upkeep of your home.
3. It’s a slow process
Buying a home can be a time-consuming process for several reasons for example, if the property you are moving to is in a chain: communication between several organisations like your bank, solicitor, and valuer. That is why we have invested in developing our Application and Solicitor website to help speed up our part of the process.
We aim to get you a decision within 5 working days and in most cases within 2. An initial decision means that you will either have your Approval in Principle or unfortunately have been declined. At that stage it’s over to you to sale agree a home but once you give us these details, seven out of ten people get their final offer within 15 workings days.
The process to get a full offer is as follows:
- Customer registers and uploads an application
- Application is then assessed by Co-Ownership
- Decision communicated to customer
- If approved, Customer sale agrees a property and uploads property details
- Co-Ownership appoints a valuer and arranges a property assessment
- Property assessment is carried out and a report is generated
- Co-Ownership finalises the final share amount and issue an offer letter
4. Credit Score vs Credit Report
“But I have a good credit score…” This is something that we hear time and time again from customers applying to Co-Ownership. Whilst it is nice to have a good credit score, for Co-Ownership and for mortgage lenders it is much better to have a good clean credit report. For some purchases like a car or a sofa your credit score matters but when it comes to a mortgage or Co-Ownership that score on its own isn’t enough, we need to do a bit more digging.
A mortgage is a big commitment and so Co-Ownership, and your bank or building society will be looking at all your finances, understanding your income and your commitments to make sure that your mortgage is affordable even if mortgage rates go up. We’ll look at your credit report (not score) to make sure you don’t have any items that are unpaid or any payday loans as these are all signs of financial stress. Both your mortgage lender and Co-Ownership are checking that your home purchase is affordable for you We recommend that before you apply to Co-Ownership that you check your credit report to make sure there are no surprises.
5. Where does the money Co-Ownership gets from rental payments and customers who buy out?
Simply put Co-Ownership is a not-for-profit organisation. This means that we don’t keep any of the money from the rent we charge, or when a co-owner buys us out. It all goes back into helping even more people buy their own home. It’s a bit like recycling to help more people.
6. Increasing your share is complicated.
We try to make it as easy as we can and in 2021/22 766 customers bought us out fully and 116 increased the share they own. Co-owners can buy a bigger share of their home any time after they join Co-Ownership, there is no minimum or maximum time limit. They can do so in chunks of 5% of their home’s value right up to 100% full ownership. They can finance increasing their share either through increasing their mortgage or by using a lump sum and the process normally takes around 3 months. For more information on buying out click here.