The process of applying for a mortgage can often be stressful and long-winded, especially if you are a first time buyer, or it has been a while since you moved home.
One way to make life easier is to do some mortgage research, speak to a mortgage expert and get ahead with some of the planning and paperwork tasks.
It definitely won’t be much fun if you leave everything to the last possible minute.
In our comprehensive guide, we’ve gathered together all of the important elements, and explain what happens at each step, including what documents are needed and how a broker can help.
The mortgage process explained
There are three broad elements to applying for a mortgage:
- Before you apply for a mortgage
- Applying for a mortgage
- After you apply for a mortgage
- Find out what’s possible
- Check your credit file
- Speak to a broker
- Get your paperwork together
- Decision in principle
- Instruct a solicitor
- Get copies of documents
- Choose a mortgage product
- Check your deposit amount
- Apply in good time
- Respond to lender queries
- Liaise with your broker
- Wait for the property valuation
- Receive your mortgage offer!
When to apply for a mortgage
It can take more time than you think to apply for a mortgage and then wait for it to be approved.
As you will be borrowing hundreds of thousands of pounds it’s a good idea to start early, to make sure you’re getting the best deal. This process can take a few months until you are mortgage ready, and in a stronger position.
If you are buying a property, the point at which you fully apply for a mortgage is a good sign to the other people in the chain. It shows that you are serious and will trigger the property to be valued but it also involves you paying some fees.
It’s normally a good idea to apply for a mortgage within a week or two of having your offer to buy accepted. You may already have a DIP in place, which will simplify things.
Once issued, a mortgage offer is valid for three to six months, depending on the lender. This is usually ample time when moving home.
You should be guided by your mortgage broker, as they will also know if the favoured lender has any delays or backlogs in processing new mortgage applications.
How to prepare
Before you apply for a mortgage you need to make sure that you are organised and in the best financial position. This will help to make the application process less stressful and should reduce the number of queries from the bank.
Our number one tip is to work with an independent mortgage broker, who can help you choose the best mortgage and get in to shape.
Brokers talk about mortgages all-day, every-day. They are the best people to help you get organised and to help you make the right choices. A whole of market mortgage broker will have access to more than 100 lenders, giving you a huge choice of potential deals.
In our Mortgage Broker Guide we’ll take a look at what mortgage brokers do, how they can help you, how they get paid plus tips on how to find a good one.
It’s always a good idea to obtain a copy of your credit report before applying for a mortgage.
Your credit file is the one item we can’t readily predict and so by getting your own copy we can see if there’s any issues that would bother the lender. Common issues would be that you are not on the electoral roll, have previously missed loan or credit payment, or possibly picked up a CCJ from somewhere.
If you have recently been separated or divorced then you may still have a financial association with your ex-partner. If their credit situation is not so good then this could affect your ability to get a new mortgage.
If there are these types of problems, then you may need to consider a bad credit mortgage, as many standard lenders won’t accept credit issues.
Equally having nothing on your credit report can also be an issue, as the lender has nothing to look at! This is called a thin credit file.
Our Credit Report Guide has lots more information, including how to check your Credit Report.
You will need to provide the lender with an awful lot of information about you, your finances and the property you wish to buy. In addition there’s quite a bit of paperwork needed to back all of this up.
Your mortgage adviser will be able to tell you what is needed and it will be slightly different for each person.
By preparing early, you can gather up all of the information in good time.
Your mortgage deposit is key to what type of product you will be eligible for, and what lenders you have to choose from.
A deposit is the amount of money that you are putting towards the cost of buying a home. It is a cash amount and you will borrow the rest of the money via a morgage. You will also need to budget for additional costs such as solicitors fees, mortgage fees and stamp duty.
Deposits are expressed as a percentage of the property purchase prices, with a minimum of 5%. For example a 5% deposit on a £250,000 house would be £12,500. You would then need a 95% loan to value mortgage.
If your family has given you money to help with the deposit then this must be declared to the lender. This is called a gifted deposit and it requires a few extra checks.
Our Guide to Deposits explains what a mortgage deposit is and how it affects your mortgage choices.
There’s quite a few mortgage choices to make, beyond how much you would like to borrow.
If you are working with a mortgage broker then they will have discussed these with you. But the main ones are:
- Repayment method (repayment or interest only)
- Interest rate type (fixed, tracker etc)
- Mortgage term
- Option to make overpayments
- Higher Lending Charges
Our guide to the different mortgage types will provide more info and help you to decide.
If you already own your home then find out if you can move your mortgage to another house. This is called porting, or portability, and it’s an option that allows you to take your current fixed rate to a new property. Learn how it works here.
There has been a move to selecting a longer mortgage term, particularly by first time buyers.
These so called marathon mortgages have terms of 30-40 years which then makes the monthly payments more affordable. At the other end of the spectrum, more established homeowners could be better off with a shorter mortgage term of 15 years or less. For people already in a mortgage there could be the option to extend the mortgage term, if the repayments are becoming unaffordable.
You should also think about the need for life cover. The basic idea of life insurance is it pays out when you die. Plans can pay out a lump sum (to repay a mortgage) or a regular monthly payment (to replace a lost income).
You don’t have to take out life insurance when applying for a mortgage, but it might be a good idea to do so. As with all things financial, remember to shop around and check different policies and prices.
Get a decision in principle
There are thousands of potential mortgage products to choose from but your mortgage broker will be able to whittle this down to probably three or four for you to make a final decision.
Once you have found the ideal mortgage your broker can approach the lender for a Decision in Principle or DIP.
This is normally quite quick and is done online. The lender will come back with a lending decision, subject to you being able to prove the information submitted.
This is an important first step in getting a mortgage and can be vital for first time buyers when searching for properties.
Once you’ve got your DIP you can be quietly confident about making a full mortgage application and paying the initial arrangement fees.
You should know that getting a DIP carries no obligation to go with that lender. You still have a free and unrestricted choice.
We would not suggest that you apply for any DIPs direct with a lender. Multiple applications can harm your credit profile, so its best to seek the advice of a broker.
Make a full application
Once the decision in principle is successful it’s time to formally apply for your new mortgage.
Your mortgage adviser will be able to help you with this, and can guide you through the questions and what documents will be needed. While some documents are needed for every mortgage (ID and address), your broker will confirm anything specific that relates to your circumstances.
Examples of these could be: letter regarding a gifted deposit, proof of funds, assets and liabilities statement.
Mortgage applications are mostly completed online, and your broker may have been able to partly complete certain sections using your personal information and the mortgage you have agreed on. You will need to provide full details of the solicitor or conveyancer who will be looking after your legal matters, its a good idea to inform them that you are applying for a mortgage and who this is with.
At the same time you will need to pay some of the mortgage related fees: These could include:
- Property valuation/survey fees
- Mortgage broker fees
- Product or arrangement fees
The fees will be noted on your mortgage quote but check with your adviser if you are unsure.
Documents
The main documents needed are:
- Driving licence
- Passport
- Utility bills
- Last three payslips
- Most recent P60
- Company accounts
- Self-assessment returns
- SA302
- CIS vouchers
- Bank statements
- Proof of deposit
Information
Details concerning:
- The property you wish to buy
- Your solicitor
- Any loan or credit agreements
- Student loan details
- Any guarantors
- Card details for fee payments
- Address history
How long does it take to get approved?
The actual timeframe will vary from person to person.
Issues or questions may arise from the property valuation or your credit search which will then take additional time.
A practical range would be 2-4 weeks, providing that any questions raised are answered promptly.
Underwriting and affordability checks
Mortgage underwriting is the process that mortgage lenders use to assess borrowers and to decide whether or not they can be approved for a mortgage. Even though you may have already received a Decision in Principle, your application still needs to go through this procedure.
The lender will be looking to check and verify the details you have supplied. To do this they will ask for copies of various documents.
The most common are:
- ID and address verification
- Proof of income
- Bank statements
If you are borrowing into retirement (age 65+) then the affordability checks will be slightly different. The lender will want to see how you can afford the mortgage after the age of 65. This could involve providing investment and pension statements and projections.
There can be quite a bit of back and forth during this stage, where the lender asks a question or requires additional information. Your mortgage broker is key to keeping this all on track and they will sit in the middle, effectively filtering many of these requests, as they already know the answers.
Your credit history
Your credit report shows what debts you have now, and how you have conducted credit agreements over the last six years.
Late payments and defaults are all recorded and will be seen by the lender when they access your credit file.
Before you apply it’s a good idea to get a copy of your credit report to see what’s on it.
Credit scores explained
Everyone has their own unique credit score, and these are calculated differently by each lender.
You won’t know what score the lender has given you but it will be affected by your spending patterns, whether you have any late payments and your employment status.
Why do lenders need bank statements?
Your bank statements will show both your income and your expenditure in one document. Lenders are obliged to make sure that you can afford the mortgage and looking through your bank payments will give them an idea on how you spend your money (and whether you are always overdrawn).
It can also highlight items that will have a negative effect on your application. Typically this would be regular and large amounts spent on gambling and payday loans.
How do they check I can afford a mortgage?
They will take information from your bank statements which will highlight regular spending patterns and financial commitments such as credit cards, current account overdrafts, student loans and car payments.
This together with your income will allow them to work out your debt-to-income percentage, or DTI.
Lenders may then perform what is called a ‘stress test‘ or affordability assessment. They will look at your monthly pay after tax and then see if you can afford the repayments if interest rates go up.
Complex scenarios
Situations that involve multiple streams of income, self-employed income, CIS vouchers, contractors and company directors can make the underwriting process slow down.
The lender can simply and easily verify the income of an employed person. It’s not so easy for those of us that have multiple jobs or who are self-employed.
Scenarios that are less common can also cause problems for certain lenders. An expatriate in need of an expat mortgage or a ships crew member looking for a seafarer mortgage.
By planning ahead and using a mortgage broker to help you, applying for a mortgage can be relatively pain free. Brokers know which lenders understand your situation and will accept the documents you have as proof of your income.
There are even some lenders that can use your limited company retained profits to boost your income, for the purpose of getting a mortgage.
Not only does this speed up the application process, it also avoids the need to re-apply elsewhere when the first lender rejects you.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
Get a valuation
As part of the mortgage application process, a surveyor will be asked to visit the property.
The lender will arrange this, and the surveyor will report back to them with a valuation and the suitability of the property as security for the mortgage.
This basic valuation is for the benefit of the lender and does not involve a rigorous inspection of the property, it’s main purpose is to establish the value of the property. Nevertheless, it should highlight obvious structural problems.
The cost of this is paid when you make a full mortgage application, and your broker will confirm the fee, which will also be included in the mortgage illustration, or KFI.
As the valuation only involves a cursory look at the property, many borrowers choose to organise a more in-depth inspection, for an additional cost.
You can read more about valuations and surveys in our Property Survey Guide.
Receive your formal mortgage offer
The mortgage offer is a legally binding document where the lender sets out how much they will lend you and on what terms. The end goal of a mortgage application is to receive a written offer for the amount you asked for.
This can only be produced once the underwriting has been satisfactorily completed and the property valuation has been done.
Sometimes the mortgage amount offered by the lender is less than you asked for. While there can be many reasons for this, it usually comes down to 2 possibilities:
- Your income and/or affordability was not enough to cover the larger amount.
- The property was given a lower valuation figure.
If the reason was to do with your income then you need to increase your deposit to cover the shortfall. Where the property has been down-valued, it may be possible to use the valuation report to negotiate a price reduction.
Depending on the specific mortgage product you have chosen, the arrangement fees can either be added to the mortgage (ie borrowed), or deducted from the mortgage. If they are being deducted then you need to increase your exchange deposit by the same amount.
How long does the offer last?
Mortgage offers are valid for a fixed period of time, usually 3-6 months. It depends on the lender so its a good idea to check.
Although the mortgage offer is designed to expire at some point, it is possible for you to approach the lender and ask them to extend it. This isn’t always successful so don’t leave it to the last minute.
If the offer expires, or the lender refuses to extend it, then you will need to re-apply with the lender, providing them with any changes in your circumstances. It’s highly likely that you will need to pay another product fee but this does not always apply to the valuation.
You need to be mindful of the expiry date if you are buying an off-plan or new build. These can take sometime to get to the point of completion, by which time many offers have expired.
Can you make any changes?
It is possible to make changes to a mortgage offer, such as requesting the interest rate or repayment terms be adjusted.
However, it’s important to note that lenders may not always agree to any requested changes and may decide to withdraw the offer. It’s also worth bearing in mind that any changes made could have an impact on the cost of the loan or the amount you are able to borrow.
Changes that mean the mortgage will be lower will generally be approved but asking for the mortgage to be increased will involve your application being passed back to the underwriters.
If the property needs to be changed then that mortgage offer is effectively invalid and a new one needs to be issued once the new property has been valued.
What’s the difference between a mortgage offer and a mortgage in principle?
A mortgage offer and a mortgage in principle are two different things. A mortgage offer is a document which states the terms of the loan, i.e. the amount of money to be borrowed, interest rate, repayment methods and fees.
A mortgage in principle is an agreement from a lender that they are willing to lend you money subject to certain conditions being met – including a credit check and assessment of your income and outgoings. It does not commit either party to the arrangement.
Do mortgage lenders do a final credit check before completion?
You expect a mortgage lender to do some checks and investigations when you first approach them. It makes sense to vet new borrowers.
But surely once you have been given the mortgage offer, it’s time to sit back and relax?
Why would a mortgage lender want to do a final credit check before completion?
Many of them do. In this article we explain what the final credit checks are, what the lender is looking for and how to prepare for them.
What happens if your mortgage offer is withdrawn?
This guide aims to provide a comprehensive understanding of why mortgage offers may be withdrawn, the various stages at which this can happen, and the proactive steps you can take to move through this challenging situation.
Can you get a Joint mortgage with parents?
A joint mortgage with parents allows children to borrow a higher mortgage amount so they can buy their first home and get on to the property ladder.
