Phase 1 – Preparation
There’s a reason why Alexander Graham Bell said, “Preparation is the key to success.” Maybe not when buying his first home but when it comes to the application process of your first mortgage, this quote has a lot of meaning. Preparing in advance means a smoother and quicker application process.Determine Your Budget
One of the most important steps is to understand your budget, which includes the amount you would need for a deposit and the amount you need to borrow, which together allows you to estimate the property price you can afford. When determining your budget, it’s important to ask understand how much you will need for the deposit, property bills, moving fees, and essential extras, such as home insurance. Your deposit is the sum of money needed as a down payment and many lenders look for a minimum of 10% of the property price. The more money you can save for a deposit will mean a lower LTV (loan-to-value) ratio, which is favourable to lenders as it reduces the risk to them. How much you’re able to borrow is based on your income, with lenders usually lending a maximum of 4.5 times your annual income. So, if you earn £30,000 a year, you could borrow £135,000.Assess Your Personal, Professional and Financial Position
Lenders will always check your credit score before any application gets underway, to try and predict your reliability to make repayments. Your credit score is based on your payment history and credit applications over the last 6 months, so you must look closely at your credit score before applying for a mortgage. There are ways you can improve your credit score, such as paying off debt, being on the electoral register and getting a credit card and ensuring you repay on time, to show that you are a reliable borrower. Each lender will look at your credit score differently, but every lender will want to see as high a score as possible. They will also want to know if you have a steady income by providing your last 3 months’ pay slips, or if you have recently changed jobs, it may be worth waiting a few months until you have passed your probationary period, and it is more likely you will stick the job out. For those who are self-employed, a more in-depth look into your finances is needed, often with 2 to 3 years of self-assessment tax returns required. It is also important to consider your outgoing, especially if you have made big purchases recently. Lenders want to ensure that you can repay them, so if you have other repayments on top of a mortgage, your risk to them might increase.Prepare All Documentation
Gathering all the documents you need prior to the application process can save a lot of stress in the long run. Items you will almost definitely need to gather will be:- Proof of income including P60s if employed and if self-employed, around 2 to 3 years of tax returns and business accounts.
- ID and proof of address including passport and driving licence or a visa or residence permit.
- Bank statements so that lenders can predict what you can afford to repay.
Deciding to Use a Mortgage Advisor
If you’re a first-time buyer, we recommend seeking the help of a mortgage broker. Even with this guide, the process of application can be long and stressful, so using a leading mortgage broker in Manchester, like Taylormade can take this stress away by helping you to choose the right mortgage deal. If you do choose to go it alone, navigating the thousands of different deals out there can be overwhelming, a mortgage broker can do this for you, and help you to understand all the conditions and extra fees, including processing fees and extra charges for early repayments. A mortgage advisor can also help you understand the lender’s requirements and make sure your application is perfect.Phase 2 – Application
Once you feel you are fully prepared, it’s then time to step into the actual mortgage process.The Mortgage in Principle (MIP)
A mortgage in principle is a certificate from a lender which shows how much you could borrow, from looking into your incomings and outgoings, and how much deposit you’ve saved. Taking this to house viewings could put you in favour over other viewers as it shows that you are a serious buyer.Find Your Property & Make an Offer
You may already have started house hunting and have the perfect property in mind, this is the fun part of the process and once you’ve found a place you wish to make an offer on, your MIP comes into play. There’s no need to rush this part, your mortgage in principle won’t expire however, if the house you want to make an offer on has lots of other people interested, it may take a couple of weeks before you hear back if they have accepted your offer.Agreement in Principle (AIP)
This is where the formal application process begins with the agreement in principle and outlines that the lender is happy to lend you a specific amount for the property in mind. It uses the information you provided previously such as a credit check which may or may not affect your credit score, but they should tell you this before they do it. They will also look at your income and expenditure such as payslips, tax returns, and bank statements and the property details, what you have offered and the property value. This step could take anything from a couple of days to a week, depending on how busy the lender is and if you find your mortgage approval is declined, you are able to ask your lender why, so that you can solve the problem before you reapply.Consult a Solicitor or Conveyancer
If your agreement in principle has been accepted, next it’s time to find a solicitor or conveyancer to ensure that:- There are no structural faults or legal issues with the property.
- The property is worth what you’re paying.
- You can afford it and understand your legal responsibilities.
- Formally confirm the deal between you and the seller once your mortgage is confirmed.
Making the Formal Application
This is where the process is no longer in your hands but in the hands of your lender. Sending all your documentation off to your lender along with submitting your formal application, then sit back and wait until your lender is done checking the details. This part of the process can be lengthy, generally taking around 4 to 6 weeks, but it’s just so your mortgage lender can process your application. If you find you’re declined at this stage, it is important to find out why, it may be because:- There is a problem with the property such as the price you have offered is too high for the value of the property.
- Your lender has discovered something you did not disclose about your financial history, like an unpaid mortgage.
