The mortgage process is a challenging time and will probably be the biggest financial commitment you will ever make. For most people, especially first-time buyers, the entire process can seem both intimidating and stressful.
It doesn’t need to be so. Partnering with a professional mortgage advisor will provide you with clarity on what to expect, what is required from you and when and to make sure the mortgage application process runs smoothly. They will also provide support and guidance to ensure that your application meets the required criteria.
So what does the mortgage application process involve?
Are you mortgage-ready?
Firstly speak to a mortgage broker
Even before you begin the process of house hunting, select a qualified mortgage broker and spend some time discussing your individual requirements and your personal and financial situation.
Your advisor will look at your income and outgoings and advise you honestly on how much you will be able to borrow, what your chances are of securing the right home loan and the type of mortgage best suited to your requirements.
Professional mortgage brokers understand the market and know the specifications of individual lenders. They can also access specialist lenders if your personal circumstances are different or more challenging, for example, if you’re self-employed and only recently started, or have previous bad credit issues.
Understand your budget
It’s imperative that you understand your budget, and your deposit and have an accurate overview of what you can afford each month, based on your income and outgoings. Your mortgage broker will research your options and fully explain this to you.
As a conservative and very approximate guideline, you may be able to borrow up to 4.5 times your annual income from a mortgage lender, but this is always subject to an overall and more complex affordability calculation, taking account of your credit score, the term of the mortgage and amount of deposit. Certain professions and borrowers with higher levels of income are more likely to be offered a bigger mortgage than most.
So having a price range and budget in mind is useful before you begin to look for a suitable property and it is highly advisable to organise your mortgage and obtain an agreement in principle before you start looking at properties.
Having a 20% deposit (or more) will usually put you in a better position for securing more competitive mortgage deals from mortgage lenders, and you will need at the very least, a 5% deposit with nearly all lenders to be considered for a mortgage. The amount of the deposit needed is based on the value of the property expressed as a percentage.
At Mortgage360, we make the whole process easy and stress-free. Why not take a quick look at our mortgage calculator to provide an estimation of what you might be able to borrow?
Other potential costs
When you’re working out your budget, be aware of all the other costs involved in a property purchase.
You will need to consider the following depending on your status and the value of the property you wish to purchase; solicitors fees, valuation and survey charges, stamp duty, estate agents fees/commission, lender arrangement fees and removals.
These are other areas where a qualified mortgage broker can assist and even provide referrals to other professionals and companies that they work with on a regular basis to ensure that the house-buying process is all joined up and runs as smoothly as possible.
Do you have all your documents ready?
It’s vital to have all your ducks in a row before you begin the mortgage application process! Although you can’t actually secure a formal mortgage offer before you find a property, there are lots of things you can prepare upfront in order to speed up the process once you’re ready to progress.
At the very least, you will need to provide the following;
- Proof of identity: this can be a passport or a driving licence. Make sure the address on your driving licence is up to date (this is a legal requirement anyway) and that the documents have not expired.
- Proof of address: you can use utility bills in your name bearing your current address, such as a bank statement, credit card statement or council tax bill. They must be current (dated within the past three months) with all spellings correct.
- Bank and credit card statements: these are required to demonstrate your outgoings, including any personal loans or hire purchase agreements, your regular expenditure patterns and vitally, your income credits to further evidence your income to the lender.
- Proof of employment: for example your payslips covering the last three months, or three years’ accounts and tax assessments if you’re self-employed. Don’t despair if you’ve been self-employed for less than two years or you are contracting; talk to your mortgage broker about your options.
What’s your credit report like?
Lenders all have different criteria which they apply when assessing mortgage applications, but the mainstream lenders will demand a good credit history.
Again, don’t despair if you have had credit-related issues in the past; your mortgage broker will be able to advise and guide you and will have access to specialist lenders who may be able to help. However, any lender willing to consider you further will likely charge a higher interest rate than most for this reason.
You can start by getting a copy of your statutory credit report here, through CheckMyFile via Mortgage360. There are also other credit reference agencies such as Equifax, Experian and TransUnion.
If you have historically not used credit at all, or if you have a poor credit score, you should work to try to improve this, where possible, before you apply for a mortgage. Oddly enough, if you haven’t borrowed money before, that’s not always a good thing as most lenders want to see evidence that you can borrow, repay on time and keep within the terms and conditions of credit agreements.
There are a number of things you can do to improve your credit score, such as;
- Make sure you’re on the electoral register for your current home,
- Reduce or even pay-off overdrafts, credit cards, loans and any other debts,
- Don’t maximise or exceed your credit limits,
- Pay all your bills on time and don’t over-rely on an overdraft,
- Don’t use your credit cards to withdraw cash,
- Try not to move home frequently, the longer you live at one address, the better your credit rating,
- Fix any mistakes you identify on your credit report; if anything is incorrect, get it corrected,
- If you’ve recently changed jobs, think about waiting six months before applying for a mortgage,
- Close any shared accounts or credit cards you don’t use or need,
- Remove any ex-partners as a financial association on your credit file, where a clear financial separation has already taken place and can be evidenced,
Once you are mortgage-ready, here’s the process for getting a mortgage deal.
#1 Get a mortgage in principle
Securing a mortgage in principle before you start house hunting can really smooth out and speed up the buying process.
What is it? It means that a lender has agreed ‘in principle’ to provide you with a mortgage, dependent upon final checks on you and the property you choose. It’s not a mortgage offer yet, but it does show sellers that you’re a serious buyer, you’re eligible for the mortgage you need and you’re all ready to proceed, which may make your offer on a property more appealing than other interested parties.
It’s usually a straightforward process, and your mortgage advisor will guide you through it, sometimes using ‘soft credit check lenders’ to protect your credit score.
It’s also worth mentioning that a mortgage in principle usually has a limited life span, usually two to three months, so you may need to refresh the process depending on how quickly you find a suitable property.
#2 House hunting and making an offer
Now the real fun begins – and with your mortgage in principle in place, you’re in a great position and may have an advantage over other buyers for more sought-after properties in your property search.
When you find a suitable property within your budget, do your homework – find out what other similar properties in the area have sold for or consider the asking price. Try to find out the seller’s situation – either from them directly or through their estate agent. If they’re in a hurry to sell, it could work to your advantage, particularly as you’re ready to proceed.
Make your offer to the estate agent, first by telephone then confirm in writing. Estate agents are bound by law to pass every offer on to the seller. Be prepared to negotiate through the estate agent representing the seller. If there are competing offers, try to find out as much as you can.
Always emphasise your position. If, for example, you are a first-time buyer with a mortgage in principle already in place, make sure everyone knows about it! Many sellers don’t want to get involved in long chains that are subject to delays or even collapse at any time.
#3 Instruct a conveyancer or solicitor
Once your offer is accepted, you’ll need to instruct a solicitor to make sure the process meets all the legal aspects applicable.
There are a whole range of tasks your solicitor will complete, including;
- Checking the property out (requesting property searches) to make sure there are no outstanding or impending planning issues, or anyone other than the seller holding rights over the property,
- Making sure you pay the right amount of stamp duty (note: property valued at less than £250,000 is currently exempt from stamp duty in the UK – that figure rises to £425,000 for a first time buyer),
- Organising a date for ‘exchange contracts’ (when the property will pass into your ownership),
- Managing/transferring funds and setting a date for completion (when you can collect the keys),
- Organising the title deeds with the Land Registry and post-completion admin tasks,
#4 Formally apply for a mortgage
In the meantime, you’ll need to make your formal mortgage application, which your mortgage advisor will take care of. If you already have a mortgage in principle, then quite a lot of the planning work has already been done.
Your broker will help you to organise and prepare the necessary documents, ready to send to the lender. Your lender’s underwriting team will then check all your information to process your application. The time that this will take to process can vary depending on factors such as the complexity of your application and the volume of other applications which the lender has at that particular time.
The lender will then carry out their own valuation on the property you have offered on, to ascertain it is worth the amount which you have agreed to pay, that it represents adequate security for the loan to be granted and is structurally sound. This can affect your LTV ratio (Loan to Value) if the property is valued at significantly less than what you have agreed to pay for it.
This is where your credit record will be checked officially and the search will now appear on your credit file. Your mortgage broker will advise against making a number of mortgage applications in close succession to avoid this potentially impacting upon your credit score.
Find the right mortgage deal
This is down to the advice of your broker who will by now, have a full understanding of your personal financial situation and preferences. Before applying for a mortgage, they will provide you with a mortgage illustration to disclose all of the key details in writing of the recommended mortgage.
If you’re mortgage-ready and have a mortgage agreement in principle, then this will be a straightforward process. See ‘are you mortgage ready’ above.
The lender will request a basic valuation of the property for lending purposes. These days, this is highly likely going to be a digital assessment performed remotely, especially where you have a deposit of around 20% or more. This basic valuation is purely for the benefit of the lender to assess its value and suitability as security for the mortgage.
Get your own property valuation
Depending on a range of factors at hand, you may wish to instruct a private survey independently once you reach a more advanced stage in the process. This will alert you to any potential defects or issues with the property. Remember, it’s not too late to negotiate on the price if you find any significant problems which need rectifying.
Here at Mortgage360, we can help you to organise this at the right time, providing you with ‘peace of mind’ and simplicity.
Receive your mortgage offer
Providing there are no major issues with the valuation or application process, you should receive a formal mortgage offer within two to four weeks, although this can take a little longer if your application is more complex or your lender is under pressure in terms of volumes of applications. The official mortgage offer will usually remain valid for up to six months but can in certain scenarios be extended if necessary, for example, this is particularly common for newly built properties which are behind schedule.
Take the time to discuss the mortgage offer again in detail with your mortgage broker, just to double-check that you understand every aspect.
#5 Exchange contracts
Once you have received and accepted the formal mortgage offer and your solicitor has completed all the necessary paperwork on your behalf, then contracts will be exchanged, a completion date will be agreed and you’ll be ready to make the move to your new property.
Nothing is agreed finally until contracts are exchanged, which means the solicitors or legal entities representing the buyer and the seller swap signed contracts and the deposit is paid. At this point, the agreement is legally binding.
This is the date and point when the mortgage funds are transferred to the solicitor along with your deposit and the payment of their legal fees, enabling the transaction to now be finalised.
How can a mortgage broker help with this process?
A qualified mortgage broker will be by your side every step of the way, providing you with support and guidance throughout the mortgage application process. At Mortgage360, we’re here to help you with every aspect of the process from advice to helping to co-ordinate your move, liaising with your proposed lender at all times, keeping you fully updated and ensuring everything runs smoothly.
At Mortgage360, we focus on understanding your personal circumstances and goals, so we can advise you appropriately. We pride ourselves on delivering an excellent service to all our clients and ensure that you are looked after at all times.
Contact us now to arrange an informal chat about the mortgage process and your mortgage requirements.
Mortgage360 is here for all your property needs.
The information contained within this article was correct at the time of publication but is subject to change.
Your home may be repossessed if you do not keep up repayments on your mortgage.