Applying for a mortgage: What is required?
Applying for a mortgage can be a timely and somewhat stressful process. However, with a little know how and planning, applying for a mortgage can be a smooth process. Follow this simple advice to make applying for a mortgage a bit easier.
How do I apply for a mortgage?
When applying for a mortgage, most will think to first go to their high street bank for a loan. Whilst this is always an option, looking around for competitive mortgage rates is almost always a good idea. Some smaller financial institutions, such as building societies, may offer better rates than your high street bank. You can easily compare rates online to get an idea of how much a mortgage is going to cost you. Make sure you look at the APRC, the annual percentage rate of change, to get an idea what the mortgage will cost as a whole, including any fees and charges.
Using a mortgage advisor is often a good idea as well. Most mortgage advisors and mortgage brokers have access to the whole-of-market, or deals that are not available to the general public. Additionally, a mortgage advisor can help guide you through the entire process of applying for a mortgage and help make sure all your documents are in order. A good mortgage advisor will explain the entire process to you and help you find the best mortgage product and most competitive mortgage rates available to you.
What documents do I need when applying for a mortgage?
• Age requirements
While the maximum age at which you can get a mortgage varies from lender to lender, you must be at least 18 years old in order to apply for a mortgage.
• Proof of identity
You will need to show proof of identity in the form of a government issued id. Your identification must not be expired in order to be accepted by lenders. If your passport or ID card is expired, you must renew it in order to apply for a mortgage, or use an alternative form of ID that is still valid.
• Proof of address
You will also need to provide proof of your address. This must usually come in the form of utility bills dated within the last three months.
• Proof of deposit
Lenders will want to see that you have the money for a deposit along with proof of where the money is coming from. If you are using a savings account to fund your deposit, you will need to provide a bank statement showing the money you have available in an account.
• Proof of income
Depending on your financial situation and how you are paid, lenders will need to see proof of income. This can come in the form of bank statements from the last 6 months or proof of direct deposits from your employer. If you are self-employed you will need to show much more in terms of evidence of income, such as a self assessment tax form (SA302), a tax year overview from HMRC, personal and business bank statements and an accountant certificate.
How can I prepare for applying for a mortgage?
• Have documents organised
Keeping all of your documents organised will ensure you have everything you need in place when applying for a mortgage. Organisation will make the process go much smoother, and there will be no surprises along the way such as not realising you do not have a needed document available for the lender.
• Save up for a bigger deposit
The larger your deposit is, the more competitive your mortgage rate will be. Whilst some lenders will accept a deposit as little as 5%, it is a good idea to have at least 10% to put down on your mortgage. Lenders prefer as little of a loan to value (LTV) ratio as possible. The bigger your deposit, the lower your rate will be.
• Work on your credit score
Your credit record is a key factor in getting a mortgage. Before applying for a mortgage you should make sure that your credit rating is good. Whilst lenders may still offer deals for credit scores below 720, they will be hard to come by and rates will be much higher as you will be considered more of a risk. Credit scores between 961 and 999 are offered the best rates.
You can improve your credit score by paying off debt early and having a low debt to credit ratio. It is also a good idea to refrain from applying for new loans or credit cards in the months leading up to applying for a mortgage. Credit enquiries can sometimes have a negative affect on your credit score, and do not look very attractive to mortgage lenders.
• Control your spending
Controlling your spending in the months leading up to applying for a mortgage is a good idea. Since lenders will want to see the past six months of bank statements and will evaluate the money coming in and out, it is best to curb your spending on non-essentials such as luxuries, clothing and entertainment.
The bottom line
Applying for a mortgage can be a timely process, however with a little understanding of what is involved, you can make the application process a little easier. Mortgage advisors and brokers are always available to help guide you through the process as well.