Applying for a mortgage is notoriously complex, so you need to make sure you have your ducks in a row before you start the application process. In this guide, we’ll explore the how-tos and the what-ifs of mortgage applications so you can move forward with confidence.
Most people don’t have the money to pay for a home upfront, which means they need to ask a bank for a mortgage. Since the 2008 financial crisis, banks are a lot more stringent in their checks. This means that you can expect to jump through a lot of hoops in order to secure your mortgage. Here’s what you can typically expect to face during your mortgage application:
Having everything in order before you apply will help to ensure nothing delays your application. The documents you need to supply will depend on things like your employment status and the source of your deposit. In general, you can expect to provide the following documents.
Having everything in order and ready to share will help to streamline your application process.
Top tip: lenders will want to see evidence of responsible spending for the last 3 months on your bank statements. During this time, avoid gambling, running into your overdraft too much or borrowing money from friends. These events can all signal that you struggle to manage your money effectively.
As part of the application process, lenders will want to know how much you earn, what your current expenses are, and how much you want to borrow. They will then stress test your finances to see if the mortgage would still be affordable if the cost of other things were to increase.
They will use factors like your current debt to income ratio and past behaviour with money (as seen through your credit report) to make a decision about your credit worthiness. At this stage, you might be approved, rejected, or offered a lower amount.
Your credit report plays an important role in your application. There are three different credit agencies in the UK and they all have different ways to calculate your credit score. Factors like the credit utilisation and history of adverse events, such as a CCJ, will all influence your credit report. Simple things like paying off your credit card in full every month and being on the electoral register can have a positive impact on your score. You should also try to keep your credit use below 25% of your total credit.
To share in the risk, lenders will often require borrowers to have a deposit that is a percentage of the total amount they would like to borrow. The bigger the deposit, the more likely a lender is to accept your application. You can also secure a better interest rate by saving a bigger deposit. At the moment, deposits will usually need to be around 10% of the property value.
Adverse credit usually won’t stop you from getting a mortgage, but it could make your mortgage more expensive. Factors like high debt or a CCJ may make many lenders think twice about lending to you. Working with a mortgage broker can help you to find specialist lenders that are willing to overlook a poor credit history, provided you are on steady footing now.
The right mortgage for your needs will depend on a number of factors. An interest-only mortgage will offer the lowest monthly repayments, but at the end of the term the full loan amount will be due, so you will need to have an investment plan in place to pay off this lump sum.
You could also choose a fixed term mortgage, and this will fix your repayments for a specific period. This offers stability and reliability, but you could end up paying more if you lock in your mortgage rate when rates are high.
A tracker mortgage will be variable every month. This could be great when mortgage rates are low, but you could get stung if the Bank of England base rate increases.
If you are denied a mortgage, this doesn’t have to be the end of the road for your dreams of home ownership. Working with a mortgage broker can help you to understand why your application was denied and what you can do to improve it. There are plenty of niche lenders out there that are willing to work with less than conventional applications so you can get your dreams back on track.