In This Guide
Apply for a mortgage
1. How much can I borrow?
2. How much can I afford?
3. Mortgage application
4. Mortgages online
5. Agreement in principle
6. Confirmation of offer
Buying at auction
Buying in Scotland
Conveyancing
Find and view
Negotiate
Plan your purchase
Success and failure
Surveys and valuations
To buy or not to buy
Apply for a mortgage
Mortgage application
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Before you go rushing off to apply for a mortgage, you should know what you are letting yourself in for. Mortgage applications are time consuming, detailed and a little bit steeped in bureaucracy. You can't blame the lenders, they are after all lending out thousands and thousands of pounds to someone they may never have met before. They really have every right to be thorough. That doesn't make it any easier for you though. Finding the patience to sit through one application can be a struggle, let alone sending off three or four speculative ones.
The whole point of the application is to standardise the assessment of whether you meet the lender's underwriting criteria. These criteria are set to ensure that barring any unforeseeable change in circumstances, you will be able to support the mortgage and meet the repayments. The basic factors that they will be looking at are as follows:
How much you earn and how you earn it is pretty important when
it comes to trying to pay back the loan. Lenders prefer you to
have regular steady employment that is consistent over a fair
period of time. Some may require you to have been in your current
position for up to six months.
Some lenders will take into account all forms of income, while others only consider guaranteed income. You normally need to prove your income by showing anything up to six previous wage slips and an employer's reference and a P60 are also often required. If you are self-employed, the standard is to accompany your documentation with three years' audited accounts.
Your equity in the new home is the amount of your deposit. The
bigger your deposit, the lower the proportion of the loan in comparison
to the property value. The less that a lender has to contribute
to a property the greater their security and willingness to lend
you the money will be. A bigger deposit could also be seen as
a stronger commitment to the purchase.
In this crime and deception-filled world, not everyone is who
they say they are. Mortgage companies want to be as sure as possible
that your identity, address and purpose of the borrowing are bona
fide and that you are not going to defraud them. You will therefore
have to show various proofs of your identity.
Lending you money for a property that is unlikely to still be
standing next week is not a shrewd bit of business. Some up front
questions about the building and its construction are designed
to weed out some properties that are seen as high risk. A valuation
and sometimes a survey are also required to demonstrate that the
property you want to buy is suitable as a security for a mortgage.
The reason you must show your bank statements is usually to help
the underwriters identify anything in your current expenditure
that may impinge upon your ability to repay the loan. They want
to know about any other mortgages, debts, credit cards, HP agreements,
loans, overdraft facilities, maintenance and court orders. You
will normally have to show three to six months worth of bank statements
to help demonstrate that the figures you provide them with are
accurate.
If you have a history of bad debts, county court judgements and
bankruptcy to your name, you may not be eligible for a mainstream
mortgage. To help ensure you are a good credit risk, a lender
may require references from your existing lender, bank or landlord.
In addition to this, many lenders will make use of the services of one of the two large credit agencies, Experian and Equifax. These offer a credit inquiry or a full credit application, which show details of any existing credit arrangements or county court judgements against you.
Some will incorporate the results into an in-house points scoring system. You will need to return a score above a certain level to qualify for a certain type of mortgage. Others lenders differ in their approach and examine all cases on merit.
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