10 Steps To Getting A Mortgage – Forbes Advisor UK
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The difference between being accepted or rejected for a mortgage can be nothing short of life-changing. Here’s a 10 step guide on how to give yourself the best possible chance of being shown the green light.
Note however, that these steps are not a guarantee. Factors such as a poor credit record (or no credit record), insufficient deposit, high monthly living expenses, or a criminal record, could prevent your mortgage application from being approved.
1. Save for a deposit
Before you even think about applying for a mortgage you’ll need a deposit – this is the amount you put down as part of the purchase price of your home. Usually, the bigger your deposit, the cheaper the mortgage rates lenders will offer you.
Each mortgage deal comes with a maximum loan-to-value (LTV). This is the percentage of the property price you are borrowing as a mortgage. For example, if you have a 20% deposit, you’ll need to borrow 80% of the property price as a mortgage, so your LTV will be 80%.
2. Cut back on spending
When you apply for a mortgage, lenders carry out an affordability assessment to check you can afford the repayments. Part of this involves the lender looking at your bank statements to see what you spend your income on – and you can prepare for this well in advance.
Around six months ahead of your application, you should aim to cut down on unnecessary spending. Examples might be expensive holidays, gambling, entertainment, subscriptions you don’t use, and so on.
3. Check your credit report
The mortgage lender will check your credit report to get a picture of what type of borrower you are, so it’s always good practice to check it yourself first. You can apply for a copy of your credit report from a credit reference agency such as TransUnion, Experian or Equifax.
Your report and score should be an accurate representation of the financial accounts you hold and your payment history. Make sure your personal details are up to date and that you are on the electoral role at your current address. If you spot any errors, you can contact the agency and request they are rectified.
4. Calculate what you could borrow
Mortgage lenders usually lend up to four-and-a-half times the total annual income of you and any joint buyer. For example, if your total household income is £50,000 a year, you might be offered a mortgage up to £200,000.
Some mortgage lenders offer larger amounts to people in certain professions or those with higher earnings. For example, Clydesdale Bank has a range of mortgages for ‘professionals’ such as architects, doctors, optometrists and pharmacists.
Other lenders have different rules if you earn over a certain threshold. Halifax, for example, will lend 4.5 times your income if you earn under £40,000, 4.75 times your income if you earn £40,000 to £50,000, 5 times your income if you earn £50,000 to £75,000, and 5.5 times your income if you earn more than £75,000.
Remember that, while you may want to, you should consider whether it is appropriate to borrow the maximum amount available to you, as you risk losing your home in the event that you can’t make your monthly payments.
5. Get an agreement in principle
Some buyers 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. It 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.
6. Compile the paperwork
When you apply for a mortgage, the lender will want to see various paperwork such as:
- Photo ID (passport or driver’s licence)
- Utility bills from your current address
- Three to six months’ bank statements
- Three months’ payslips and/or P60
If you’re self-employed, you’ll also need:
- Two years’ self-assessment tax return forms (SA302)
- Tax year overviews from HMRC
- At least two years’ certified accounts
- Evidence of future contracts if you’re a contractor
7. Establish the right mortgage
Research the different types of mortgage, so you understand your options. Types of mortgage include:
- Fixed rate
- Variable rate
- Tracker
- Repayment
- Interest-only.
You also need to think about your ‘mortgage term’ – this is how many years it will take you to pay off the mortgage. The longer the term, the lower your monthly payments will be but the higher the total amount of interest you’ll pay overall.
Lenders tend to impose age limits, so you’ll need to be under a certain age (normally 65 or 70) when the mortgage ends. Bear this in mind when choosing a mortgage term.
There are various fees attached to each mortgage deal too, such as arrangement and valuation fees, which should be factored into your calculations.
Mortgage rates change on a daily basis but you can keep up-to-date with our live mortgage table, powered by Better.co.uk. Just select the circumstances and preferences suited to you.
8. Enlist a fee-free mortgage broker
While you can apply for a mortgage directly with a bank or building society, many people benefit from expert advice from a mortgage broker.
An independent mortgage broker such as our partner Better.co.uk can search the vast majority of the mortgage market for you to find the right deal and won’t charge you a fee.
It will also weigh up the fee against the rate and check it offers the right flexibility for your circumstances. A mortgage broker will also guide you through the application process.
9. Make your application
You can’t make a full mortgage application until you have found a property to buy and had your offer accepted by the seller. Once you’re at this stage you can submit your mortgage application via your broker (or directly). The lender might ask for additional paperwork so be ready to answer any queries quickly. The lender will also carry out a valuation of the property to check it’s worth the purchase price.
10. Receive your mortgage offer
When the lender is happy with your application, it will make a formal mortgage offer. This can take around four weeks. You need the mortgage offer to move forward with your purchase.
Mortgage offers are usually valid for six months and can sometimes be extended if your purchase is taking longer. If the mortgage offer can’t be extended, you’ll have to start the application process again.
When you have your mortgage offer and the conveyancing work is complete, your solicitor can exchange contracts with the seller. He or she will then arrange for your mortgage funds to be transferred from your mortgage lender to the seller on the day of completion.
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