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Mortgage Applications Made Simple
House hunting is fun, but buying a home and applying for a mortgage can be stressful, especially if it is your first home. When you apply for a mortgage, there can be endless unfamiliar paperwork and terminology. You also may not know how or where to start when applying for or getting a mortgage. If you are ready to apply for a mortgage, then this step-by-step guide will help you through the process.
Before You Start The Mortgage Application Process
Prices vary a lot on the market, so you should establish how much you could qualify for before you apply for a mortgage. The rule of thumb is that you should have a third of your income available to repay a mortgage.
1. Establish your budget and affordability
Use a computer spreadsheet or sit with a pen and paper and draw up a budget. Include everything that you pay over the course of a month. Include all your credits, debits, and account charges, and remember to add in any expenses that may arise within the next year. This will enable you to establish how much you can comfortably afford to pay your monthly payments.
You should also take into consideration the areas where you are looking to purchase a property and its proximity to schools, work, and family, should this be applicable. Factor into your budget costs for transportation or fuel.
You will also need this budget during the application, which we will touch on later.
2. Settle any minor outstanding accounts
It is important to have as much cash flow as possible available when purchasing your house. If you are able to settle any small accounts, this will likely increase your available monthly cash. This may also increase the amount of the mortgage that you qualify for, as you will have more disposable income and less debt.
3. Pre-qualification for a mortgage
Some real estate agencies may have a calculator on their website that you can use to approximate how much you could qualify for and your repayment amount.
To speed up the process, you could even approach a lender directly or work through a mortgage broker to acquire a pre-approval in principle (otherwise known as a mortgage in principle). Getting pre-qualified for a mortgage will tell you what price range you can reasonably consider and if you do stand a chance of qualifying for a home loan.
4. Speak to a mortgage advisor
Mortgage advisors will be able to guide you through the entire mortgage process. They are there to assist you with questions you may have about applying for a mortgage. They may even be able to assist you with choosing the right mortgage that would suit your requirements. In the long run, this could save you a lot of valuable time.
5. Documents for the mortgage application process
It is always advisable to have your documents prepared ahead of time. Ensure that you have updated and current documents available. A prospective lender will require proof that your information is current and not outdated.
You will need to provide various documents, such as:
- Identification document – passport or driving license. It’s a good idea to ensure that you have a valid driving licence or passport before starting your mortgage journey.
- Proof of income – if you are self-employed, you may need to provide bank statements and proof of income for a longer period, possibly up to three years. You may also need to provide tax returns and bank statements.
- Current address – generally, recent utility bills may be acceptable.
- Bank statements – including your current account, credit accounts, and savings accounts. Some lenders will not find online statements acceptable. They may request original documents certified by your bank.
- Tax information – which may include your unique taxpayer reference or tax statements.
House Hunting
It is now time to go house hunting to find a new home. The easiest way to start is to approach a reputable estate agent who may have properties available for you to view.
As a pre-qualified buyer, an estate agent will be able to review your basic information to establish your affordability and possible eligibility to purchase a property. They may use mortgage calculators to establish how much a mortgage is going to cost you every month as well.
You will then be able to view properties based on your affordability. When you find the right property and your offer is accepted by the buyer, it’s time to find the right mortgage.
Mortgage Brokers
When your offer is accepted, the estate agent can put you in contact with a mortgage broker who can submit your mortgage application to a variety of lenders on your behalf and negotiate the best interest rates and deals for you.
A mortgage advisor will be able to give you advice on different types of mortgages. They will be able to help you find the right mortgage for your requirements and can assist you with your forms and mortgage application.
The broker may do a soft credit check on your financial history to establish which type of application will be best suited to you and which one will likely be accepted. These soft credit checks give them an idea of your eligibility for mortgage approval.
They will be able to advise you of a formal mortgage offer from the mortgage provider.
The Mortgage Application Process
Information gathering
Your mortgage broker will request documentation from you to complete the formal mortgage application. These include the documents listed above, like your bank statements, proof of identity, and credit reports. You may also need to supply a budget sheet documenting all your income and expenses. This gives a good indication of your disposable income for monthly mortgage repayments.
Submitting your mortgage application
The mortgage broker will then submit the information and documents to various mortgage lenders. Within a few days, you may receive your first loan offer. Let’s look at this in a bit more detail.
Mortgage lenders may have different criteria for different mortgage applications. Your personal circumstances may also affect which additional documents are requested. Your broker will help you apply for a mortgage by submitting various applications to different lenders on your behalf.
These brokers typically have relationships with the lenders and will have a good idea of where you may be successful with your application. Thus, it is usually better to leave the submissions to them.
When you apply for a mortgage and complete your documents, it is very important to provide up-to-date information that is accurate. Your application may not be approved if the lender finds that you were dishonest in your application.
Credit review
The mortgage lender will review your bank statements to ensure you can afford the monthly payments. They will be able to ascertain your monthly expenditures and any current accounts you may be paying.
They will also ensure that you have a steady income and know what your financial circumstances are at the time of your mortgage application. Your bank statement will give them a good indication of this. If you are self-employed, you may need to supply bank statements for yourself and your business banking account.
They will then conduct a full credit report in order to check and review your credit history, as well as determine what type of borrower you may be. If you pay your bills on time and do not have a bad credit history, you may be eligible for a mortgage.
If all goes well, you will be on to the next steps.
Agreement in principle
The mortgage lender may first give an agreement in principle. This means that you have passed your credit checks, and if the process continues well, your mortgage application will be approved.
Once they have reviewed your credit reports, credit history, and all the documents you have supplied, they may be satisfied that you are a responsible client and regular payer.
There are various other checks that happen during this process. These are not about your personal circumstances or your financial circumstances, but rather about property valuations and other matters that are not part of your formal mortgage application.
Again, if you are happy with the agreement in principle and wish to proceed, you can move on to the next step.
Formal mortgage offer
With everything on track, you will receive a notification that there is a formal mortgage offer on the table. If multiple mortgage providers find your request favourable, you may receive multiple mortgage offers. It may be a good idea to use a mortgage calculator to work out which offer is more financially viable for you. Otherwise, your broker or advisor will be able to guide you here.
Next, you would be invited to a mortgage appointment. Here, you would meet with the lender and complete the legal documents at their offices or a suitable meeting place. You will probably need to bring along the original documents or any copies that you provided at the start of the mortgage application process.
In your mortgage appointment, a representative from the mortgage provider will present the mortgage offer, go through the paperwork with you, and explain all the mortgage details. The mortgage deal will include your monthly mortgage repayments, the interest rates they offer, and any other costs like insurance and legal fees.
When considering the mortgage deal, remember that you need to be able to afford your monthly mortgage repayments and cover all the extra costs as well.
Once this is complete, you will have received your first formal mortgage offer. This is just another step in the process and means another round of paperwork to be completed.
The mortgage agreement
Once you have gone through all the questions and signed all the paperwork, you will have a formal mortgage agreement in place.
The mortgage application part of the process may take up to six weeks to complete. However, this is just a small portion of the home-buying, as the full sale process could take up to six months.
After this, your mortgage application will be complete, and you will soon be an official homeowner.
Mortgage Application Tips
- You don’t have to accept the first mortgage offer that you receive. You may receive multiple mortgage offers from multiple lenders. Choose the one with the best interest rates.
- Save for your deposit. Having a deposit may be a requirement from a potential lender. The bigger the deposit you have to put down, the smaller the mortgage amount you will require. You may also end up paying less back in interest charges.
- When you create your budget, you need to include items such as council rates and taxes, homeowners insurance, and property maintenance. Always have backup (rainy day) funds in case you are ever unable to make your monthly repayments.
- Before you apply for a mortgage, start putting your accounts in order and get your documentation together. If you are self-employed, you will be required to submit more documents, so have your accountant get this information ready for you.
- Remember that even if you have received a mortgage offer, you can still shop around for better interest rates or discount deals. However, don’t wait too long before you accept the mortgage offer because you will have a limited window of opportunity to accept it.
- Be prepared for hidden costs. Renovation, moving and cleaning costs can all add up, and you don’t want to eat into your savings or deposit for these.
FAQs
What types of mortgages are available?
You get different types of mortgages and a mortgage advisor will be able to guide you through each one. Simply, you get a fixed rate and a variable rate mortgage. Some lenders also offer a discount mortgage which gives you a discounted repayment rate for a set period of time. The lender will offer you a mortgage based on your creditworthiness and credit history.
How can I improve my chances when applying for a mortgage?
Make sure your credit report reflects that you are a good payer. Settle all your smaller accounts to reduce your debt. It’s also recommended that you make use of mortgage advisors when you apply for a mortgage. They are there to help you and guide you through the process.
Do I need a deposit to apply for a mortgage?
More likely than not, the lender will require a deposit in order to give you a mortgage. Your mortgage advisor will be able to advise you regarding the requirements of each lender. If you have a deposit of between 5% and 10%, you should be safe. Some lenders may require a smaller deposit, but it is advisable to have at least a 5% deposit available.
SOURCES
https://www.halifax.co.uk/mortgages/help-and-advice/how-to-apply-for-a-mortgage.html