Judging by the response that our guide for first-time buyers received, we thought it would be a good idea to write a post on the mortgage application process. If you have never applied for a mortgage before, things can seem a little overwhelming. Everything from the concerns over being accepted to the amount of choice available can stop you in your tracks, but it doesn’t have to be so daunting.
With a little information, the correct preparation and the right people on your side, applying for a mortgage can quickly change from a nightmare to a walk in the park. So, if you’re ready to find out more about getting a mortgage the easy way, this is the article for you!
Preparing to apply
There are a few things that you need to take care of before you approach a lender for a mortgage. As with most things in life, knowledge is key, so doing your homework will stand you in good stead when it comes to making your application.
Order your credit reports
The first thing that you need to do is contact all of the credit reference agencies to make sure that all of your details are correct and there are no erroneous entries made against your name. You can perform these checks online and most of them offer a free period within which you can get all of the information you need. The three main agencies are:
Each of these will hold different information and mortgage lenders vary when it comes to which agency they use to perform credit checks. Some will use all three, whereas others may only run checks with one.
For a more in depth look at credit agencies and how they work, take a look at this excellent resource from Money Saving Expert.
Put together a documents folder
Applying for a mortgage naturally requires a fair amount of documentation. Getting everything together in advance can save you a lot of time and headaches later on and it will also highlight any missing paperwork that you may need to replace. Documents you need to include are:
- Bank statements from your current account (preferably six months, but some lenders will accept three)
- Savings accounts statements, including ISAs etc.
- Payslips, generally the last three months
- If self-employed, two to three years of accounts from your accountant
- P60 from your employer
- SA302 if you are self-employed or have more than one form of income
- Proof of any benefits you may be receiving
- Any utility bills you may have
- Driving licence and/or passport
Some lenders may require more documentation than others, but these bits of paperwork are pretty much universal. Having these documents to hand will not only put you ahead of the game, it will also make the application process itself easier.
You will be asked various questions regarding income and expenditure, so having these close by will allow you to quickly find the information that you need. Remember to be accurate when answering any questions, too. If the details you give do not match the paperwork that you have, that would raise a red flag with any lender.
Perform your own affordability check
Lenders will run affordability checks on you before they agree to offer you a mortgage. In order to know where you stand and to avoid being declined, you can run your own affordability check before you make the application.
While your personal check will not be anywhere near as detailed as that of your lender, it will give you decent idea about whether or not you are in the right range. Making these checks are fairly straightforward and there are many decent calculators available online. We like this one from the Money Advice Service.
Check your outgoings
If you are a few months off of making your mortgage application, checking your outgoings now can raise your chances of getting a mortgage dramatically. Cutting back on unnecessary expenditure will make your application more attractive to lenders and may even increase the amount you can borrow.
So, get rid of that unused gym membership and ditch any other outgoings that you can in order to streamline your current account and improve your chances of success.
Get in touch with an expert
Taking out a mortgage is a huge step, so getting an expert on your side is a wise move. Speak to a mortgage adviser to see if you are on the right track and ensure that you end up with the best deal for you.
Here at Petty Son and Prestwich, we work closely with Clarity Financial Management and can recommend their services wholeheartedly. Give them a call today on 0127 763 3300.
Choosing the right way to repay your mortgage
There are generally two ways to repay your mortgage: repayment or interest only. Repayment mortgages are, as the name suggests, a straightforward repayment plan that you have to adhere to until the end of the mortgage’s life. Once completed, you will no longer have any debt remaining and the property will be 100% yours.
Interest only, on the other hand, is a kind of mortgage where you, unsurprisingly, only pay back the interest on the loan. Once the end of the mortgage comes around, you will then have to make the outstanding capital repayment in order to clear the debt. Many people prefer this type of mortgage as it gives them the opportunity to invest and save their money elsewhere, making their money work harder for them.
However, this is not without risk. Should you come to the end of the mortgage period and not have the funds to clear the debt in place, you will be forced to sell your home in order to make the repayments. This element of risk has made interest only mortgages much harder to come by since the financial collapse of 2008, as lenders tend to favour safer options these days.
Which mortgage type?
The next decision you need to make is on the type of mortgage that you require. Again, these are split into two camps: variable and fixed rate.
Both types are fairly self-explanatory. Fixed rates cement the amount that you need to repay for a certain period of time, keeping the interest rate the same regardless of what happens to the lender’s overall rate. The length of time that the fixed term runs for can vary from two to 10 years depending on which mortgage you opt for.
Variable rates do not fix in the interest rate that you will pay back and they are usually split into two subdivisions: trackers and standard variable rates (SVRs). Tracker mortgages follow the Bank of England’s base rate and will rise and fall in accordance with any changes that the BoE may make.
Standard Variable Rate mortgages are set by the lenders themselves. While influenced by the base rate from the Bank of England, SVRs can still change independently. Checking the small print to find out exactly how these changes are made is essential if you want to go down the SVR route.
Making the application
All that remains now is to make the application. Once you have gathered up all of the necessary paperwork, decided upon which type of mortgage you require and spoken to a specialist, the application process becomes a whole lot easier. If you decide to take on the services of a mortgage advisor, they may even make the application for you.
Mortgage applications are generally still made in branch, although more and more of the high street banks are providing agreements in principle online. Ask the lender you wish to apply with and use the method that suits your needs best.
How long will I have to wait?
This largely depends upon who you intend to borrow from, but the process shouldn’t take any longer than two to four weeks from the date you applied. Stay patient and keep everything crossed!
If you are looking to move in East London or West Essex, we’re here to help you find your perfect home. Get in touch with our friendly agents today.