Beckie Pepperrell, Consultant Mortgage Broker's guide on how to obtain a mortgage.
Before you apply for a mortgage
Whether you’re a first-time buyer, moving house, purchasing a second home or buy to let, on average it will take a lender just under three months to process your mortgage application from start to completion.
But there are some things you can do to speed up the process before you even apply.
- Check your credit profile!
Lenders need to know you have the discipline to make the monthly mortgage payments.
Your credit profile will play a big part in obtaining the mortgage you want, so make sure you check it before applying so that you can iron out any errors beforehand. Lenders tend to use either Credit Expert (Experian) or Equifax, although there are other providers out there.
Don’t pay too much attention to your actual credit score, particularly as you may find that Credit Expert rates you differently to Equifax. At the end of the day, every lender has their own criteria for borrowing eligibility.
I would always recommend discussing your credit profile with your broker as it could help them to find you the right lender.
- Register to vote
Lenders use data from the electoral roll to run identity checks. Not being registered will certainly lower your credit score – and many lenders will refuse you if you are not on it.
- Review your outgoings
To make sure you can afford repayments lenders will take a look at your bank statements.
Exceeding your overdraft limit will ring alarm bells for lenders, as will being close to the limit on any credit cards, so make sure you have enough money in your account each month and keep credit cards at a minimum. If at all possible, don’t go into overdraft.
- Be prepared
When applying for a mortgage you will be asked to provide certain documentation. ALL lenders will need to confirm your identity, where you live, your circumstances and your borrowing requirements. Make sure you can provide:
- A passport or driving licence
- A utility bill, bank or credit card statement dated within the last two months
- Evidence of your deposit - e.g. bank or building society statement showing the build-up of funds over a three-month period, including the source of any large credits to the account or if the deposit is being gifted by a family member, a signed letter from them.
You may also be asked for:
- Proof of your annual income – e.g. latest P60 and last three payslips if employed, or latest two years’ tax returns and SA302 if self-employed
- Latest three months’ bank statements from your personal account with every day spending
- Up to date mortgage statement – if you are applying for a remortgage
- Proof of buy to lets owned and their mortgages if applicable
- A passport or driving licence
Applying for a mortgage
Every lender has different lending criteria such as:
- Minimum time in employment
- Credit history
- Types of property
Knowing which lender does what is where a good broker can really make the difference.
Make sure you use a broker who is independent and has access to the whole market. If you choose to go direct you may not be approaching the “best” lender for your circumstances.
A broker will find the lowest rate available to you based on your individual circumstances.
It may not be the lowest rate in the market but ultimately could result in a formal mortgage offer rather than being declined.
When it comes to processing your mortgage application every lenders has a different turnaround time depending on their current workload, systems and complexity of the application.
We track lenders’ processing times so that we can give you an idea of what to expect when making an application.
Broadly speaking the process is:
- You talk to us about your requirements
- We provide you with one or more Key Facts Illustrations – documents which give you details about a specific mortgage product~
- You choose a mortgage
- We get you a decision in principle from the lender (known as DIPs or AIPs – agreement in principle)
- You give us the necessary documents (see above)
- We help you complete the mortgage application form
- We submit the mortgage application on your behalf
- The lender underwrites your application (reads and checks your documents, carries a credit check) and instructs the valuation.
- The lender makes a decision and issues the formal mortgage offer. Sometimes the lender will ask for more clarification or documentation from you before issuing the offer – we help with this bit.
- Then the solicitors carry out the legal conveyancing process (searches, contracts, etc.)
- Contracts are exchanged and a date is set for completion. The funds are drawn down once your solicitor confirms they have finalised the legal work – you complete.
Application hold ups
Of course each case is unique and often there are no hold-ups at all; however if there is a delay it’s generally after a DIP/AIP has been processed.
Here are some common hold-ups to a mortgage application:
- Residential mortgages are based on affordability which every lender calculates differently. The most common delay is where there are deductions on the payslips for childcare or pension contributions. Some lenders will factor these into the affordability calculation as a commitment, whereas others won’t but if we don’t know about these deductions up front we may quote a lender who in fact will not offer the full mortgage amount you require.
- The applicant (you the borrower!) does not provide the required documentation in a timely manner.
- Verifying your income at DIP. You will need to let us have sight of how your income is structured over 3-6 months including overtime payments, commission and bonuses. All lenders have their own criteria on what they will accept.
- And of course, it’s really important to remember to sign the application form! You’d be surprised at how many times this gets forgotten.
Beckie Pepperrell has left Mortgages for Business for pastures new. For more information or for any questions relating to this blog, please contact the Residential Team on 0345 345 6788, where one of our consultant mortgage brokers will be happy to assist.
Below you will see an example of how I used my experience and knowledge to get a mortgage offer within five working days – instead of the usual of two to four weeks!
First time buyer receives 85% LTV mortgage offer in just 4 days
We were approached by a full time project manager who, at 35 years old, was looking for a mortgage to purchase her first home.
She had been living with her parents and had managed to save a 15% deposit.
She was hoping to buy a 1-bed new build flat in Cambridge, close to her job but was having difficulties finding a lender because many don’t accept new build flats unless the borrower can provide a deposit of at least 20-25%.
Fortunately we were able to source a lender, which can only be accessed via intermediaries, that was willing to help and which offered a very competitive rate.
We submitted the client’s application on Monday 18th January and by the Friday the offer was issued. Here are the details:
Property value: £345,000
Loan amount: £293,250
Rate: 1.99% 2 year tracker
Term: 30 years capital and interest
Lender arrangement fee: £995
Mortgage payment: £1,086 pcm
26th January 2016