The difference between being accepted or rejected for a mortgage can be simply overwhelming. Here’s a 10-step guide on how to give yourself the best chance of getting the green light.
1. Save hard for a deposit
Before you even think about applying for a mortgage, you’ll need a down payment – this is the amount you put towards the purchase price of your home. The larger your deposit, the lower your mortgage rates will be.
Each mortgage agreement has a maximum loan-to-value (LTV) ratio. This is the percentage of the price of the property that you are borrowing as a mortgage. For example, if you have a 20% down payment, you will need to borrow 80% of the price of the property as a mortgage, so your LTV will be 80%.
2. Reduce your expenses
When you apply for a mortgage, lenders do an affordability assessment to make sure you can afford the repayments. Part of this involves the lender looking at your bank statements to see what you’re spending your income on – and you can prepare for it well in advance.
About six months before your application, you should aim to cut unnecessary expenses. Examples could be expensive vacations, gambling, entertainment, memberships you don’t use, etc.
3. Check your credit report
The mortgage lender will also check your credit history – so it is recommended that you check them first so that there are no surprises and you can rectify any mistakes. You can request a copy of your credit report from a credit reference agency, the top three being TransUnion, Experian, and Equifax.
Check each report to make sure it is an accurate representation of the financial accounts you hold and your payment history. If you spot any errors, you can request that they be corrected.
4. Calculate how much you can borrow
Mortgage lenders typically lend up to four and a half times your total annual income and that of any joint purchaser. For example, if your total household income is £ 50,000 per year, you might be offered a mortgage loan of up to £ 200,000.
Some mortgage lenders offer larger amounts to people in certain occupations or to those with higher incomes. For example, Clydesdale Bank offers a range of mortgages for “professionals” such as architects, doctors, optometrists and pharmacists.
Other lenders have different rules if you earn above a certain threshold. Halifax, for example, will lend 4.5 times your income if you earn less than £ 40,000, 4.75 times your income if you earn £ 40,000 to £ 50,000, 5 times your income if you earn £ 50,000 at 75 £ 000 and 5.5 times your income if you earn more than £ 75,000.
Remember, even if you need it, you don’t have to borrow the maximum amount available.
5. Obtain an agreement in principle
Some buyers get an “agreement in principle” or “decision in principle” from a mortgage lender before applying for a formal mortgage.
As its name suggests, it is a lender who agrees “in principle” to offer you a mortgage for a certain amount. It will look at your income and usually perform a “soft” preliminary credit check, which will not affect your credit score.
An agreement in principle is not a promise or guarantee of a mortgage, but it gives you a fair idea of how much you could borrow.
6. Put your papers in place
When you apply for a mortgage loan, the lender will want to see various documents such as:
- Photo ID (passport or driver’s license)
- Utility bills from your current address
- Three to six month bank statements
- Three-month payslips and / or P60
If you are self-employed, you will also need:
- Two-Year Self-Assessment Tax Return Forms (SA302)
- HMRC Tax Year Snapshots
- Accounts certified for at least two years
- Proof of future contracts if you are an entrepreneur
7. Establish the right type and term of mortgage
Research the different types of mortgages to understand your options. Types of mortgages include:
- Fixed rate
- Floating rate
- Interest only
You should also think about the “term of your mortgage,” that is, the number of 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 will pay.
Lenders tend to impose age limits, so you will need to be under a certain age (normally 65 or 70) at the end of the mortgage. Keep this in mind when choosing a mortgage term.
There are also various fees associated with each mortgage transaction, such as arrangement and appraisal fees, which should be factored into your calculations.
Mortgage rates change daily, but you can keep up to date with our live mortgage chart, powered by Trussle. Simply select the circumstances and preferences that are right for you.
8. Use a good mortgage broker
While you can apply for a mortgage directly from a bank or building society, many people benefit from the expert advice of a mortgage broker.
A no-cost mortgage broker like Trussle can research the vast majority of the mortgage market to get you the right deal, comparing the fees to the rate and making sure it comes with the level of flexibility you need to your situation. A mortgage broker will also guide you through the application process.
Free mortgage advice
Trussle is a 5-star Trustpilot-rated online mortgage advisor who can help you find the right mortgage – and do all the hard work with the lender to secure it. * Your home can be repossessed if you default on your mortgage payments.
9. Apply for a mortgage
You can’t apply for a full mortgage until you find a property to buy and your offer has been accepted by the seller. Once you are at this stage, you can submit your mortgage application through your broker (or directly). The lender may ask for additional documents, so be prepared to answer any questions quickly.
Since the Covid pandemic, lenders may request additional information if you have been placed on leave or received assistance from the Self-Employment Income Support (SEISS) program. Different lenders have different approaches to workers who have received government financial assistance – your broker will know the loan criteria for each lender.
The lender will also conduct an appraisal of the property to verify that it is worth the purchase price.
ten. Receive your mortgage offer
When the lender is satisfied with your request, they will make a formal mortgage offer. It may take about four weeks. You need the mortgage offer to go ahead with your purchase.
Home loan offers are generally good for six months and can sometimes be extended if your purchase takes longer. If the mortgage offer cannot be extended, you will need to start the application process again.
When you have your mortgage offer and the assignment work is complete, your lawyer 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.