Applying for a mortgage may seem like a daunting task. There is a lot to consider. Let's take a look at the process, being prepared will help make the application go as smoothly as possible.
How to get a mortgage!
What are the steps in a mortgage application? well, for starters, you'll need to provide a lot of information and complete a lot of forms.
Let's look at the complete process so that you can get prepared and plan your application.
The bank or building society will want to determine that you are a good prospect for a loan and that you’re likely and able to pay it back. The first measures to asses this will be -
Debts – if you’ve got significant loans, it will be worth reducing or clearing these. A lender is less likely to give you a mortgage if you already have a large sum to pay back
Finance – if you have finance loans, perhaps for a car, it will be viewed in the same way as debt. It may be worth paying off financed items before applying for a mortgage
- Credit score – The higher your credit score, the more likely you are to get a good mortgage. There are various service providers for monitoring your credit score, companies like Experian or Clearscore can highlight any issues with your credit report and also give you advice.
Check out our mortgage calculator to get see what you may be able to borrow.
Knowing your budget will help you determine how much you can afford to borrow. Here's our mortgage calculator to help with this part of the process.
You want to establish all of your outgoings, considering regular costs of all types, and compare this to income. Keep in mind there's a good chance a mortgage will be less money than your included rental cost.
Now confirm your deposit amount and you can then determine how much you'll likely need to borrow to cover the property price.
If your potential mortgage payment along with outgoings is too high in comparison to your income, it can put you at risk of getting into debt and falling behind on your mortgage payments. That’s why the underwriters look at your bank statements. Make sure that whatever mortgage you are accepted for is a workable monthly payment that won’t put you under pressure.
Most lenders will apply a 4.5 annual income rule. This means that you’ll be able to get a bigger mortgage if you’re buying with someone else, as you can combine your incomes.
You also need to have a property price range in mind, no doubt you've looked on portals and estate agents' websites. It's important to be clear on what the average cost of the property type you hope to buy is in the current market.
Get your documents together
There are quite a lot of documents that are required when applying for a mortgage, it’s a good idea to gather important paperwork and have it ready to avoid delays in the process.
Proof Of Identity – It can include a driving license or passport. Ensure the address on your driving license is up to date because an old address can lead to complications.
Proof Of Address – You’ll need to provide at least two documents as proof of address. They can include a utility bill, bank statement, credit card statement or council tax bill. They must be dated within the last three months, and your name needs to be spelt consistently and correctly.
Proof of benefits received
Proof Of Employment - P60 form
Last three months’ payslips
Bank statements of your current account for the last three to six months
And if you're self-employed
Statement of two to three years’ accounts from an accountant if you’re self-employed
Tax return form SA302 if you have earnings from more than one source or are self-employed
Do I need a mortgage agreement in principle (AIP)?
It's a good idea to get an ‘agreement in principle’ or ‘decision in principle’ from a mortgage lender before making a formal mortgage application. As the name suggests, this involves a lender agreeing ‘in principle’ to offer you a mortgage of a certain amount. To do this they will look at your income and usually just carry out a preliminary ‘soft’ credit check, which won’t affect your credit score. An agreement in principle isn’t a promise or guarantee of a mortgage but it gives you a fair idea of how much you might be able to borrow.
Having an AIP shows sellers (estate agents) you’re serious and ready to buy. Some estate agents will insist you have an AIP before they’ll show you their properties for sale. An AIP can also help you negotiate and give you an edge against competitors when making an offer to buy a property.
Getting an AIP is usually straightforward, it's advisable to take this opportunity to find a trusted mortgage broker if you haven't yet. They will be happy to arrange the AIP on your behalf. Always seek independent advice from FCA-registered mortgage brokers when choosing a mortgage.
Once you’ve found a property and your offer has been accepted, you will need to apply for a mortgage formally. Your mortgage broker can help arrange this for you. Ocean's mortgage brokers will process the whole application for you once you've agreed on the perfect product for you.
An underwriter will verify your information while considering your application, and this can take varying amounts of time depending on the lender. The lender will undertake a valuation on the property you intend to buy to confirm that it’s worth what you intend to pay for it. It is worth noting - this survey is for valuation purposes only, simply for the lender to know what they are lending on is at a fair market value.
The lender (underwriter) will thoroughly check your documents and credit record, this search will appear on your credit file.
If everything is in order and there are no issues with your application, and the properties' mortgage valuation the lender will provide you with a formal mortgage offer. This usually happens within about 4 weeks, and the mortgage offer usually last for six months.
You may find that the process takes longer if there’s an issue with the valuation, additional documents or information is needed, the lender is busier than usual, or your application is complicated.
It’s vital to go through and understand the terms and conditions of the contract. Ensure you’re happy with the mortgage loan agreement before making any commitments. A good mortgage broker will have gone through the loan details with you before applying, however, do double-check any points before 'accepting' your offer.
Once you accept the formal mortgage offer, you can instruct a solicitor to act on your behalf and undertake the conveyancing process - but that's a whole other topic.