The Mortgage Application Process: A Complete Guide
Applying for a mortgage can be a very daunting experience, whether it's your first time applying or even if you've been through the process before. Should you get a mortgage broker to offer expert mortgage advice? How long does a mortgage offer take to come through? What is an agreement in principle?
We've pulled together an essential guide to everything you need to know about your mortgage application. From what you need to do before you apply, to what will happen at each step of the process. All the way through to how long your offer is likely to last before you need to reapply.
Here's your ultimate guide to the mortgage application process:
Before You Apply For A Mortgage Deal
There's a lot of work to do before you start to apply for a mortgage deal.
This work is essential to make sure you aren't wasting a lot of time and effort. Either arranging a mortgage that isn't right for you or that you have no chance of being accepted for.
Here's what you need to know.
Work out how much you can afford to borrow
This stage is key. Mortgage lenders need to know how much you can afford to borrow before they will lend you any money. To find out how much you need, you'll have to do your research into the house prices in the area you are wanting to live.
Then you'll need to work out how much you are likely to be able to borrow based on your income. Typically lenders will offer up to four times your household income. Using an online mortgage calculator at this point is a good indicator of what you'll be able to borrow.
It's important to remember though that this isn't a guarantee of what a lender will offer you.
Other factors will come into play during the mortgage application process. Such as your credit score, for example - a poor credit history will affect your ability to borrow a large amount.
Make sure you have your deposit ready
The general rule of deposits is that you need to have around 10% of the amount that you want to borrow as a deposit. The bigger the deposit you can take to your lender, the better loan to value ratio you can achieve, which would help you to access deals in the mortgage market with a lower rate of interest.
There are alternatives available if you are struggling to save up for a large enough deposit. Shared Ownership is a government-backed homeownership mortgage scheme, available to first and second-time home buyers to help them purchase their homes.
The initial share of the property that you’ll actually purchase (and need to secure a mortgage for) is generally between 25% and 75%, which means a much smaller deposit is required.
Get your documents ready for your mortgage application
Paperwork might not be your favourite thing to do, but when it comes to the mortgage application process it's an essential part to get right. To apply for a mortgage you'll need proof of your identity, details of your employment and up to six months' worth of bank statements.
To prove your identity you will normally require either a passport of a photo driving license, which should show your current address, so make sure this is up to date before beginning your application. You'll also need two documents as proof of address, which should be bank statements or utility or council tax bills.
If you are in full time employment, you'll need to provide a P60 and at least three months' of wage slips as documentation, while self-employed workers will need to include tax returns, statements from your accountant and bank statements.
The six months of bank statements you will provide are evidence of your outgoings, including credit card statements and any loans or car finance agreements. They should also be able to demonstrate how you have built up your deposit, so if you have received money as a gift to help with this (from your parents for example) you'll need a letter from them as evidence.
A Step-By-Step Guide To Applying For A Mortgage:
Once you have gathered your documents and double-checked that they're all up to date and accurate, you are ready to start your mortgage application process. Here is the step-by-step guide to what you need to do:
Step 1: Contact a mortgage broker
If you've never had a mortgage before, the whole process can be daunting and you're also in no position to know what constitutes a good deal or a bad one. This is where a mortgage broker can be so crucial. A mortgage broker will be able to assess your individual circumstances and identify the deals that are best suited to your needs and finances.
Having a mortgage broker rather than going direct to a high street bank also means that you can get a good idea of whether lenders will lend to you because they can do a soft search on your credit score, which won't affect your rating but will help you to understand what your options might be before you start applying.
A mortgage broker can also calculate the total cost of your mortgage, including all of the charges and fees and can explain conditional charges and fees like if you decided - and were able - to repay your mortgage early.
Mortgage brokers are either paid through direct fees (usually around £500) or through a commission from lenders. Paying them might seem like an additional cost at a time when there are plenty of other things to pay for, but using a broker rather than going direct to your bank can save you much more money across the lifespan of your mortgage.
Step 2: Get a mortgage in principle from a mortgage lender
If you're buying a house, you need to know how much money you can borrow from a mortgage lender, but you also need to know how much you will be spending on the house before you borrow it. If this sounds like a chicken-or-the-egg situation, don't worry, because there is a simple solution.
Getting a mortgage in principle from your lender means that they are agreeing to give you a mortgage subject to the final checks and approving the property you decide to buy. This 'decision in principle' usually lasts for six months before you would need to apply again.
It's also important to note that many lenders will do a 'hard' credit check in order to offer you a mortgage in principle, so you need to be serious about borrowing the money from them as too many checks will affect your credit score, which could make it more difficult to borrow money.
Getting a decision in principle can be a very important part of the mortgage process, especially if it has been requested by an estate agent, or if you want some certainty about how much money you are likely to be offered.
Step 3: Find your perfect home
Once you have your mortgage in principle and know what budget you have to spend, you can approach your search for a home with new confidence. It's important to know what your needs are for a new home and having some certainty about your budget will give you focus on what you can afford in terms of which areas, what size home, garden, etc.
If you need help deciding where to live, check out our guide with 10 crucial factors to consider and prioritise.
Step 4: Start your formal mortgage application
When you've found your dream home, you've got your documents ready, you've got your mortgage agreed in principle and your mortgage broker has given you all the advice you need, it's time to get started for real.
If you have a mortgage broker they can arrange your formal mortgage application for you, otherwise you will need to approach your lender of choice yourself and ask them to begin the process.
This sees them get a mortgage valuation survey on the home so that they can be sure that it is worth the money you are asking to borrow to buy it, protecting their interests in case anything goes wrong. They'll also go through your paperwork and do a credit check - this will show up on your credit file, so it is not advisable to make multiple mortgage applications in a short space of time - to make sure they are happy to lend you the money.
Even if you have a mortgage agreed in principle, it is still possible at this stage that they will find something on your credit record or in your paperwork that means they are not happy to give you a formal offer.
Step 5: Get your official formal mortgage offer
If all goes well with the valuation and the lender's checks, they will offer you the mortgage that you need to buy your home. Once you have received this, you will need to decide whether to accept the offer and then your solicitor will arrange with your conveyancer to begin the conveyancing process to move the funds from the lender to the seller on the agreed completion date as you exchange contracts.
It may be the case that they refuse your mortgage application, which would mean that you will need to try again either with that lender or elsewhere. A mortgage broker should be able to help you understand what has gone wrong, but it is still worth asking the lender why your application was declined.
FREQUENTLY ASKED QUESTIONS:
How long does a mortgage application take to be approved?
Once you have submitted your mortgage application, the wait to find out whether you'll receive an offer can be frustrating and tense. Unfortunately, there's no guarantee of how long you'll have to wait as it can vary from lender to lender. It's possible to hear back within 24 hours but it can be equally likely that you'll be waiting around 2-3 weeks or more.
The mortgage valuation is an area that can lead to delays because it requires the lender to contact a surveyor and arrange with the estate agent to have the property valued. This alone can take around two weeks to be completed.
Is it possible to speed up the mortgage application process?
There are ways that you can speed up the mortgage application process and spare yourself at least some of tension. Using a mortgage broker not only helps you find the best mortgage deals but also means you have someone on your side who is there to chase things up and keep everything moving swiftly.
Being really careful with your paperwork before you submit it is certainly something you can do to avoid unnecessary delays to the application process, because any typos or mistakes that need clarification will take time to correct.
You can also speed things up by making sure your credit record is going to stand up to scrutiny by closing unused credit card accounts and ensuring that you're paying your bills on time.
How long does a mortgage offer last?
Once you have been offered a mortgage, it is normally valid for between three and six months to allow time for the solicitors and conveyancers to complete their work and for you to exchange contracts with the sellers.
If this time expires and you have not completed the purchase or it has fallen through, you may reapply to the same lender for a mortgage, but it is likely that you would need to begin the mortgage application process again as your circumstances may well have changed since the original offer was made.