The process of applying for a mortgage seems to be terrifying especially if you are a first-time borrower. You are not alone who shivers up and down your spine. Before you know how to apply for a mortgage in the UK, you should find out if you are a mortgage-ready or you have worked on your budget.
You do not need to choose a specific property at the time of preparing your budget. Visit property portals to get an idea of how much houses cost in your area. You will have to save at least 5% of the property price. Try to have a bigger deposit size because the property prices would have hiked up by the time you apply for a mortgage.
The second thing you need to focus on is your credit history. A lender generally wants you to have a good credit standing. If you have a bad credit score, chances of getting an approval are bleak. If any lender signs off on it despite poor credit rating, you will have to put between 20 to 25% of the property value as a deposit size and pay high-interest rates.
Once you are ready to take out a mortgage, the following are the steps you need to follow.
Look out for a mortgage
Apart from the cost, many things you need to consider at the time of applying for a mortgage. Financial experts suggest consulting a reputed broker. They will give you advice on which provider is most likely to accept your application.
There are various types of mortgage deals, and each has its pros and cons. A mortgage broker can educate you about how it works and which one you should apply for based on your financial circumstances.
Getting professional advice is always a good idea, especially if you are a first-time buyer or you do not have much knowledge about a mortgage you are seeking.
A broker will evaluate your credit report, income statement and explain all charges you will incur to process the application. You can also directly contact a lender by shopping around. However, there are chances of rejection. A broker will refer you to a lender whose deals suit your budget.
Start collecting all your documents as soon as possible. Undoubtedly, you will need a proof of ID, employment details and bank statement of at least six months. You will also need utility bills, proof of benefits (if any), P60 form from your employer, and last three-month payslips.
Make sure that documents you provide including utility bills have your name correctly spelt and current address details are accurate. If you change your surname after getting married, make sure that it shows up on your documents.
If you are self-employed, you will have to prove that you are earning enough to take on a mortgage. Apart from an identity proof and a bank statement, you have to submit the following documents:
- The income statement of at least two years of the same business
- Tax return form SA302
Direct lenders will consider your business expenses along with personal outgoings, to get a better idea of your affordability.
Get mortgage in principle
A mortgage in principle is a written statement that a lender sends you over to tell how much they would be ready to lend you. It is not a formal mortgage offer.
A lender will give you an agreement in principle after checking your credit score, financial circumstances, and the amount you would like to borrow. Remember that this does not bound a lender to give you money down the line, nor does it bound you. You can go to another lender to apply for a mortgage.
The purpose of issuing you a decision in principle is to give you enough time to search for your property. Real estate agents will not take you seriously without this. The validity of this offer remains for up to 90 days.
Make sure that you get an offer on a property within this period. Otherwise, you will have to begin again, and every time you get an agreement in principle, you will lose your credit score.
Apply for a formal mortgage application
Once you have got an offer on a property, you will formally apply for a mortgage. If you are applying with a mortgage broker such as Shinemortgages.co.uk, they will do this legwork on your behalf.
A lender will conduct a valuation on the property and look deeper into your finances to assess how much you could afford. The final amount of payment will be what a lender tells you after making a formal mortgage application.
If you are turned down, make sure that you know the reason, and do not put in a new application because it can damage your credit score.
Once the entire procedure gets completed, mortgage funds will be transferred to a person you are buying property from. You will get your home keys and start paying down instalments.