Mortgages Guide | Mortgage Help Product Information

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Applying for a Mortgage

There are three stages to successfully applying for a mortgage - getting an agreement in principle, submitting a full application and gaining confirmation of your mortgage offer.

Getting an agreement in principle

Getting an agreement in principle can be a relatively simple task, but is one that is very worthwhile doing before you get too attached to the idea of buying a property that is on the market. Although you can get an agreement in principle on the web, over the phone, or in person, this is usually followed up by a written quotation.

A written agreement in principle shows any prospective seller that you mean business and can actually get a mortgage to cover the purchase price. On top of that, it provides a handy reference for some of the key features of your mortgage, and what your repayments will be for the discount period and beyond (assuming that interest rates don't change).

The full mortgage application

Full mortgage applications can be quite time consuming to complete, owing to the level of detai required by most lenders. The application standardises 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:

  • Earnings and employment status - How much you earn 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.
  • Liabilities - 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.
  • Equity - 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.
  • Personal details - 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.
  • Property - 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.
  • Credit history - 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 existing your 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.

Confirmation of Mortgage Offer

If you satisfy the lender that your application is worthy, then you will receive a written confirmation of your mortgage offer. When you get a written confirmation of your offer, you usually receive two things. Firstly, there will usually be some form of standard covering letter, thanking you for your hugely valued custom and welcoming you into a family of customers that have their mortgage lender in common. In addition to the letter, you will receive a written mortgage confirmation. This will normally set out some of your personal details, some facts about the property, your salary details, your solicitors (if you have appointed them by this stage, and will require a signature.

And that is that. The valuation will take place and you should hopefully get a letter back a week or so later confirming that everything was in order. The day that arrives is a happy one, as you know that there is very little in the way of you exchanging contracts with the vendor’s solicitor, and ultimately moving in.

On the final completion of the mortgage, you will get another letter, confirming that the funds have been released, confirming the repayments, terms, and a few other details. But by this time, you’ll have the keys and will be too busy to pay it much attention!