Applying for a mortgage may seem a daunting process, but do not worry. With a bit of research and planning, buying a home does not have to be a nightmare.
Whether you’re a first-time buyer or looking to move up the property ladder with your second or third home, here are 12 useful ways you can properly prepare for your mortgage – so you move into your new home, hassle-free.
What do lenders take into account when assessing a mortgage application?
The most important thing from a lender’s point of view is that you will be able to afford your monthly mortgage repayments. They will work this out by looking at:
- Your household income (salary and any other additional income).
- Your outgoings (bills, insurance etc).
- Debt you may have (personal loans, credit cards etc).
- Your credit history – to weigh up whether it’d be risky to lend to you.
Lenders will also factor in unexpected changes – such as a future rise in interest rates – to see if you would still be able to make repayments if they were to go up.
12 ways to prepare for a mortgage application
Speak to a mortgage adviser
Speak to a mortgage adviser – this could be someone at a lender, a mortgage broker or an independent financial adviser. Speaking to an expert is a good idea. They’ll be able to give you lots of information so you can choose the right mortgage for you – with confidence.
Work out how much it’s going to cost you
Sit down and draw up a plan – even if it’s a bit unstructured – as to how much the whole mortgage application will cost you, from start to finish. The fees you will pay to move include but are not limited to:
- Arrangement fee.
- Booking fee.
- Valuation fee.
- Stamp duty.
As we explain below, it’s highly likely you’ll go a bit above your planned mortgage costs. But having at least some idea of what it is all going to cost will make you prepared and give you some peace-of-mind.
Start saving for your deposit
As soon as you can. The sooner the better. The bigger deposit you have, the smaller your loan will be. Currently, you can get mortgages with at least 5% of a property’s value – so if you’re looking at a £200,000 property, you would need a £10,000 deposit. The bank would lend you the remaining £190,000. While this sounds pretty good, remember that because your deposit is small, your monthly payments will be quite high.
It can be a good idea to save for a bigger deposit because:
- Easier, cheaper mortgage repayments.
- It’s less risky – your chances of falling into negative equity are smaller.
- Better chance of getting a mortgage – because lenders will be more confident you can repay.
Have a clear-out
It’s important to show a mortgage lender that you’re a responsible borrower. So, well in advance of making your application, get your finances in order if they’re in need of a spring-clean. Do this by:
- Paying off any outstanding debt.
- Closing any accounts you no longer use.
- Avoid applying for credit.
- Don’t go into your overdraft.
All the above are signs you might have financial problems, so nip them in the bud in good time.
Get your credit reports together
When applying for a mortgage, ensure you take a look at your credit reports – these provide a snapshot of your borrowing history in the form of a credit score. Lenders use them to test your financial buoyancy.
How to check your credit score
You can get a credit report from credit reference agencies and, if you’re clever, might be able to get one for free. When you’ve got your report, take a look over it for any inaccuracies. If you spot any, report them. If they get fixed your credit score might look a little better. The main credit reference agencies in the UK are Experian, Equifax and Noddle. Not paying back payday loans on time can have an impact on your credit rating, so it is important that you are always on top of what you are borrowing.
Register to vote
If even the EU referendum didn’t persuade you to sign-up to vote, do it now. It’ll help you because you need to be on the electoral register in order to apply for a mortgage. This is so lenders can make sure you are who you say you are and you live where you say you live.
How to register to vote
- Get on the electoral register through the government’s portal.
- You can also register by post if you wish.
Gather all your essential documents
As part of the mortgage application process you will need to provide a raft of different documents, all to do with your identity, your earnings and expenditure, and your employment status. The following will be the main documents you’ll need, although lenders may ask for more:
- Payslips for the last several months.
- A P60, your end-of-year tax certificate.
- Bank statements for the last several months.
- Proof of any savings, like an ISA.
- If you claim any benefits, proof that you do so.
- Household utility bills.
- Passport or driving licence.
- Other outgoings like insurance, childcare costs, commuting costs etc.
To keep this process as simple as possible, store all the documents in a box marked ‘mortgage docs’ – even if you don’t need them right away, they will be easy to grab and work through when you do.
Prepare for your mortgage interview
That’s right, interview. But don’t be too alarmed. It’s a fairly simple process through which a lender will assess you in person. The creation of the mortgage interview was driven by rules governing mortgage lending. Lenders need to be responsible when they lend, so they interview mortgage applicants to help them make the decision.
Before your mortgage application, you will probably have an interview with a lender. This could last about an hour or maybe longer. The whole aim of this informal session is for the lender to work out what mortgage option might be best for you. So they will ask you questions about your financial history, your current spending and your future plans. Prepare to talk about:
- Your expenses like household bills.
- Other costs like holidays and clothing.
- Any repayments you might have.
- Your plans for the future and how these might affect your financial situation.
Bring with you:
- Bank statements.
- Proof of identity.
Close down any joint accounts you’re no longer associated with
If you’ve got joint credit, perhaps in the form of a joint bank account, but you’re no longer associated with the other person, remove yourself from the account. If they have a bad credit history this will affect your credit score too – even though it’s nothing to do with you.
Try and stay in your job
If you’ve changed jobs a lot close to applying for a mortgage, this could make lenders a bit wary. Try and maintain job stability if possible. This will increase the lender’s confidence that you’re a good person to lend money to.
Make sure you’ve got a rainy-day fund
Because you will probably need it. It’s unlikely the mortgage application process will cost as much as you planned for, so factor in some extra costs. These could be additional fees from the mortgage lender, or essentials that you might not yet have considered – the cost of a removal van, some new furniture or some even the odd takeaway as you settle into your new home.
Order the removal van!
Talking of removal vans, get yours booked (or see if a friend has got a van). And good luck!
What happens after you’ve applied
The process usually works like this:
- Your application will be reviewed.
- Your lender will probably ask for a property valuation, as well as a homebuyers’ report or structural survey.
- If approved, your lender will notify you with an official mortgage offer.
- You will have a short time with which to consider the offer.
- If you say yes, you can move in.
- You then start making your mortgage payments.
If you get rejected
Don’t panic. It happens to a lot of people. If your mortgage application is declined, probably the worst thing you could do is chuck out a load of new applications. This is because they could end up on your credit file and reflect badly on you.
Common reasons mortgage applications are declined include:
- Poor credit history.
- Not being registered to vote.
- Too much debt.
So what to do? Consider:
- Talking to the lender about why you’ve been rejected – they may be able to give you some vital feedback.
- Bring down your debt so the next time you apply, your financial situation has improved.
- Speak to a financial advisor for what you could do next.
Generic advice is not a service regulated by the Financial Conduct Authority.