Whether you’re looking to buy a new property or a ‘fixer upper’ to put your stamp on, buying your very first home is an exciting time. However, it is really important to understand the whole mortgage process. It’s no secret that the mortgage approval process can be challenging. But there are things you can do to give yourself the best chance of success.
Cut back on your spending
The first thing that should be looked at is your budget and how much you are spending. Cutting back on your spending can help you qualify for a lower interest rate and save money in the long run. The first thing to look at is reviewing your monthly expenses and see what you can cut back on. Making small changes can make a big difference to your budget.
Check your credit report
When you apply for a mortgage, every lender is going to want to look at your credit report. It is therefore a good idea to check your credit report before you apply, so you can be aware of any potential problems that could arise. This could help you avoid problems later on in the application.
There are a few things to look for when checking your credit report, such as:
- Any missed or late payments on previous loans or credit cards
- Any County Court Judgments (CCJs) against you
- Any bankruptcy or insolvency proceedings against you
It is really important to try and improve your credit if you have anything negative on your credit report. To do this you can clear any outstanding debts, and make sure all future payments are paid on time.
Save diligently for a deposit
Most lenders will usually require a minimum deposit of 5% of the property’s purchase price. The bigger deposit you have, the lower the mortgage amount will be. You are also more likely to be offered lower interest rates with a larger deposit. So saving for a deposit is one of the most important things you can do to increase your chances of being approved for a mortgage.
Find out how much you can borrow
Lenders will typically use an income multiple of 4 to 4.5 times salary per person. For example, if you earn £30,000 a year, you may be able to borrow anywhere between £120,000 and £135,000. However, some lenders may offer a mortgage that is 5 times your salary, so its important for you to talk to your broker so they can put you with a lender that works best for you.
Get an Agreement In Principle (AIP)
An AIP is a statement from the lender that, based on the information you have provided, they are likely to lend you a certain amount of money. This amount is not guaranteed, and is subject to further assessment once you have found a property, but it does give you an indication of how much you could potentially borrow. It can also speed up the mortgage application process once you have found a property, as the lender will already have some of your information on file. And, in some cases, having an AIP can make you more attractive to sellers as it shows you are serious about buying and have the finances in place to do so.
Prepare your paperwork
Your broker and lender will require a variety of documents, so it’s best to have these organised in advance. The documents required will include:
1. Photo ID (driver’s licence or passport)
2. Utility bills addressed to your current residence
3. Up to six months’ bank statements
4. A P60 and/or three months’ payslipss
If you are Self-employed there are a few extra documents you need to provide, such as:
1. Two years’ self-assessment tax returns
2. HMRC tax year overviews
3. A minimum of two years’ certified accounts.
Understanding how long it takes to get a mortgage
Everyone’s circumstances are completely different, and therefore it is different for every application. It can take anywhere from a few weeks to a few months to get approved for a mortgage. The process of getting your application approved starts with your lender assessing your financial situation and deciding if you are eligible for a mortgage. If this is approved, they will then carry out a valuation on the property you are looking to buy. Once the valuation is complete, your lender will provide you with a loan offer. At this point, you’ll need to decide whether or not to accept the loan offer. If you do accept, the next step is to sign the mortgage contract and pay the deposit. Once the mortgage contract is signed, your lender will arrange for the money to be transferred to your solicitor. This can take a few days. Once the money has been transferred, you’ll need to complete on the purchase of the property. Completion usually takes place around four to six weeks after you’ve accepted the loan offer.
Being prepared and understanding the process is very important when applying for your first property. If you need any help or advice our mortgage advisers here at Agentis Financial are always here to help, so contact us today.
