Time for a big decision:
Buying a house is one of the most important decisions that a person has to take in life. And only a selected few of us would be fortunate enough not to worry about the finance to buy one. That leaves the majority of us to apply for a mortgage. Members of the latter category, keep reading!
When to apply:
Generally, people want to apply for a mortgage once they have seen a property, and are ready to put an offer on it. Once the offer has been accepted on the property, this is where the process of applying for a mortgage starts.
Who to apply?
There are two ways to apply for a mortgage; you can go to your bank or building society, or you can go to an independent mortgage broker. One important point to note here is that just because you have been with a particular bank for a while does not guarantee anything. Since the last financial crisis, the banks have become quite strict in what they offer you. The other drawback going to your own bank is that your mortgage options might be limited as you would need to choose from their own products.
On the other hand, if you go to an independent mortgage advisor or broker, they would have a wider range of products from various lenders. There might be a possibility that your chances of getting a mortgage may slightly improve as the different lenders have different criteria, and some of them can be a bit lenient than others. However, an independent mortgage advisor would generally charge you for making and submitting your mortgage application costing you a fee in the region of £000.
How much do they lend? Generally speaking, what lenders might offer you depends on various factors such as your salary, expenses, age, and type of job you do. Some banks would not lend you more than 4.5 times your annual gross salary, and some can lend you up to 5 times your salary.
Factors that can affect the mortgage: Let’s be honest, lenders are there to make money and the simplest rule is that if they think a borrower may not be able to pay back or default on the loan, they will not lend. A mortgage application’s outcome can depend on various factors:
Age: Generally the older the applicant/s, the shorter term the mortgage would be provided for. Old age can also be a factor for mortgage denial.
Income: What you earn annually before tax plays an important role in what you will get. The more you earn the better the overall amount you would have as a mortgage. And that’s why a couple each earning a salary would have a better chance of getting a bigger sum of a mortgage than a single person.
Your expenses: This is what the lenders call an affordability test. Again the reason for taking into account your expenses is to make sure that you would have money left after paying your bills every month. A salary of £2000 a month will not be very promising if your total expenses are more than it.
Your job: Questions like what you do and how many hours you do it, how long you have been doing it, and whether your contract is temporary, or permanent, all play a vital role in how your application will be assessed. It again all boils down to lenders playing safe. A pharmacist working 35 hours a week on a permanent contract will be safer to lend than to a builder who works 40 hours a week but on a zero-hour contract.
Deposit: Currently there are very few lenders that would consider a mortgage application if you don’t have at least a 5% deposit. So if you are looking to buy a house worth £150000, you would need a deposit of at least £7500. However, if your deposit is larger than what you must put down, it not only improves the chances of getting a mortgage but also helps you to get a good deal.
Credit history: A good credit history does help a lot when applying for a mortgage. It is again a sign that a person has been reliable in paying back his debt. It also tells the lender about your past and present credit history, any loans and credit cards you have, and the addresses you have lived in the past.
Preparation: Before you apply for the real deal, go to some lenders for an informal chat. Phone around, ask your friends and family which lender they went to, and what was their experience with them. Once you have some feedback, talk to a lender face to face or over the phone. Make sure you tell them at this stage that you don’t want them to do anything that might leave footprints on your credit history. Give them the figure (download the sheet) of your income and expenses, and your job details. They might be able to give a rough figure of what they can offer you.
Once you have a rough idea of what amount you might get, start to do the paperwork from your side. This will involve collecting: your latest 3 to 6 months bank statements and payslips, any contract that specifies your contractual hours with your company, last three months utility bills, your id such as passport, a sheet that has your monthly outgoings and incomings, details of any tax credits or child benefit, proof of any saving statement from your bank, etc., proof of any other asset that you hold such as stock and shares, details of any loan, commitments, etc. Gather the same for your partner if you are going to apply for a joint mortgage. Once happy, ring the lender and book an appointment.
An appointment with the lender to formally apply for a mortgage can nowadays take up to 3 hours as you would need to provide details about a lot of things!; including your income and spending. Moreover what you say may need to be substantiated by proof therefore it is a good idea to have the information at hand. Going prepared will not only save time but also make the whole process easy.
What happens next? Despite what you may have been quoted in the preliminary Agreement in principle letter aka mortgage promise; there is no guarantee of a mortgage unless your application has come approved from the lender’s underwriter complete with a valuation report. If the case is straightforward a decision with a mortgage should arrive in a week to two. However different lenders have different time frames.
After you get the mortgage offer: The offer is usually valid for 90 days to 180 days depending upon the type of mortgage. However note that an offer can be withdrawn or may not be available for the property if, your personal circumstances change that might affect your ability to pay the mortgage, or the house you are thinking of buying does not pass the valuation mark (the bank thinks that there will be a risk as the condition of the property has some major issue that might affect its value.