Getting a mortgage can be much less painful than you fear, and preparing for your mortgage application in advance will make it even smoother. Here’s a quick and general guide to how to prepare for a mortgage application, how to get a mortgage. And as a first step: how to get a mortgage in principle.
Check your credit score – how to prepare for a mortgage application
It’s important to check your credit score, particularly if you haven’t done so recently. There are three main agencies that supply credit ratings for UK consumers and we usually recommend using checkmyfile.com, since they show all three agencies in one report. You can get a full report from them for free if you cancel in the first month. After that it’s a £14.99 monthly subscription.
Try to check 3-6 months before your mortgage application. The earlier you do so, the more time you’ll have to fix any minor issues. Most of us find some small surprises the first time we check. They’re often easy to fix.
Improve your credit score – how to prepare for a mortgage application
Here are the steps you can take in the months before a mortgage application to improve your score:
- Register on the electoral role to vote at your current address
- Pay all your bills on time
- Try not to use your overdraft or leave balances on your credit cards
- Avoid applying apply for credit
- Correct any errors on your record – checkmyfile.com has information on how to do so and you may need to contact lenders or suppliers.
What credit score do you need to get a mortgage?
Each agency has a slightly different scoring system which can seem confusing. They often record slightly different information. Here is a rough comparison:
| Credit Score | Experian | Equifax | TransUnion |
|---|---|---|---|
| Fair | 721-880 | 380-419 | 566-603 |
| Good | 881-960 | 420-465 | 604-627 |
| Excellent | 961-999 | 466-700 | 628-710 |
There is no single number that qualifies you for a mortgage. But in general, you should be able to apply, with reasonable hopes, as long as your score is “fair” or higher. The higher your score, the more lenders will be available, potentially offering you lower costs. But every lender will check for specific issues such as outstanding debts, County Court judgements, defaults and late payments. If you have such a past history of such issues, even if it is just a few late payments then discuss them with your broker so they can explain them to a lender. It’s always better to disclose and explain in advance.
If your score falls below “fair” then an application may be more challenging. There are some lenders that don’t use credit scores but they will still look at the detailed facts behind the score. Other specialised credit lenders may allow some past CCJs and defaults but expect to pay more. The higher cost is likely to make larger loans less affordable and so harder to achieve. Again speak to your broker.
Put down the largest deposit you can afford – how to prepare for a mortgage application
Even as a first time buyer you’ll need at least a 5% deposit. If you can afford a higher deposit then better still. Once you reach 25% then you’ll have much higher range of lenders and rates to choose from. Remember though that you’ll need to set aside some cash for conveyancing fees, the cost of moving and most importantly Stamp Duty. You can get some idea of Stamp Duty costs from this calculator.
Start to save as early as you can for your deposit when preparing to get a mortgage. And consider regular saving into an ISA to reduce tax. With a Lifetime ISA you can benefit from a 25% annual top-up from the government, up to a maximum of £1,000. Many first time buyers get help from friends and family with a gifted deposit. You can agree that this is a gift, loan or even share in the property. Remember that whatever the source, you’ll need to prove where the deposit came from, with bank statements and a letter from your donor, if you have one.
Prove your earnings – how to prepare for a mortgage application
Proving your earnings is the single most important step in qualifying for a mortgage. In market jargon this is know as proving “affordability”. How you do so depends on how you earn.
- Salaried employee – proof is straightforward – payslips and a P60
- Self-employed – you need to produce 2-3 years of your tax calculations or SA302 forms which you can find here.
- Newly self-employed – if you’ve been self-employed for at least 1 year then there are still opportunities – talk to your broker
- Company director – if you’re self-employed and own at least 20-30% of your company then you’ll also need to show 2-3 years of your company accounts, as well as 2-3 years of your tax calculations or SA302 forms which you can find here. Read more here.
- Pension income – assemble the proof of your state pension and if you have one, your private pension statement.
- Benefit income – you can download a statement here or for Universal credit here
- Other income – most other forms of income can count as earnings although lenders vary on how they assess them – make sure you have the documents and bank statements to prove them
How much you can borrow depends upon your exact circumstances although a good rough guide is 4 to 4.5 x your earnings. However some lenders may be more cautious about certain types of earnings such as rental or bonus income. Others will be more welcoming and a broker can help you find the best lender.
The highest multiples are reserved for higher earners with a secure income stream and a track record. Once you earn more than £300,000 annually or have a net worth of more than £3 million, then some lenders may agree to treat you as High Net Worth (“HNW”) and affordability calculations can be much more flexible.
The vital documents – how to prepare for a mortgage application
Here are the documents that you will need to support almost every application:
- Proof of ID like a passport or driving licence
- Proof of address like a recent utility bill, council tax statement or bank statement
- Proof of earnings – as a above
- Bank statements of your current account for the last three to six months
- Evidence of deposit – the savings account statement for you or your donor
Choose a mortgage broker
A good mortgage broker can almost always:
- Save you time and effort in making an application
- Advise you on ways of helping you prove affordability
- Access lenders that are not available directly, and which may save you money
- Suggest specialist lenders for non-standard earnings or situations
- Advise you on alternatives such as bridging loans and terms or structures that can reduce your costs
- Arrange insurance to protect your payments and future
- However, a broker may charge you a fee, usually payable for the final mortgage application
- Make sure you understand the amount and timing of the fee and don’t be embarrassed to discuss it.
How to get a mortgage in principle
Before you start looking for a property, it can help to get pre-approved for a mortgage. It’s entirely free and puts you under no legal obligation. Done properly it will give you a firm indication of how much a particular lender might make available to you as a mortgage, given your earnings, credit and deposit. The advantage is that will know exactly what you might be able to afford. Better still you can use the DIP to prove to sellers and estate agents that you’re a credible purchaser with funds available. That may help you to be chosen as the winning bidder or even negotiate better terms.
Mortgage Pre-Approval, usually known as a Decision in Principle (DIP) or Agreement in Principle (AIP) can take as little as an hour for mainstream borrowers. The process for more complex applications or smaller lenders can take a little longer but usually no more than two days. Be aware that most lenders will “soft” credit check as part of the DIP process. This is a quick check, visible only to you and leaves no hard imprint on your credit record. So future lenders and your credit score should not be affected. The credit agencies say that a soft check has zero effect on your score but we’d advise slight caution that you should avoid too many soft checks in a short space of time.
Find a property and make an offer
From this stage on you can draw breath. Once you’re pre-approved for a mortgage, you can safely start looking for a property. The right estate agent can make a lot of difference. Remember that despite their reputation, they are human too! Treat them and the property seller with honesty and respect and you’ll build a relationship that will help in any negotiations or difficulties along the way. Visit the property at least twice and wander the area, research schools, shops and amenities before you think about making an offer. Sellers will take your offer much more seriously if they know you have mortgage DIP pre-approval.
Confirm your property offer and timing
Once you have the survey in your hands, you can confirm your offer. Be clear about your timing, any sale you need to make of your existing property, exchange and completion dates. A quick exchange is always preferable if you can achieve it. That way you avoid surprises and quickly have the comfort of knowing your new home is securely yours.
Apply for a firm mortgage offer
If your offer is accepted, your broker will apply to the lender to convert the DIP into a confirmed mortgage offer. You’ll now need up-to-date copies of many of the documents we mention above. The lender will commission a survey of the property to make sure it is adequate security for the mortgage and the valuation matches the purchase price. There may be a valuation fee that you’ll need to pay now, typically £100-250. Product fees for the mortgage are typically paid at completion and can usually be added to the loan. If you have agreed a fee with your broker then that is usually payable now.
If you and your broker have followed the tips above on how to prepare for a mortgage application, then the DIP process is usually smooth, as long as the valuation matches. It usually takes 2-3 days for the firm offer to be issued but can take 7-14 days in more complex cases or if the lender is busy with applications.
You should review the offer carefully and ensure that you understand the terms and conditions. Be certain that any declaration you make is factually correct to avoid later misunderstandings. Remember that false or incorrect data will at least slow down your application and may stop it completely. In extreme cases it could be treated as fraud!
Get a survey
You should usually get a survey to assess the condition of the property. It’s usually done concurrently with the firm mortgage offer to avoid delays. Any problems it uncovers can help you negotiate a lower purchase price, or to plan financially for any work that needs to done. RICS (“Royal Institution of Chartered Surveyors”) have a good guide here that explains the three standard levels of survey available. However be warned that any survey, particularly on an older property will turn up a host of small problems. Make sure you focus only on material issues that could affect the value of the property. Communicate with your surveyor to understand what is material and listen to their recommendation.
You’re not obliged to commission a survey. Many buyers are happy with a the valuation done by the lender as part of the full mortgage offer. Our recommendation would be to do one unless you’re sure about condition and construction. The survey will also mean that you are insured via the surveyors liability insurance for any surprise structural or material problems with the property. Ask friends or your estate agent for recommendations for a good surveyor and make sure you’ve agreed costs in advance.
Mortgage conveyancing – exchanging contracts
Ask friends, your broker or your estate agent for recommendations for a good conveyancing solicitor. Agree rough costs or a cap in advance. A good solicitor will give you invaluable advice and guidance. Make sure you are clear with them about your requirements for the purchase. Don’t be shy in calling them and pushing them to exchange contracts as quickly as required. But make sure that no material issues remain unresolved before doing so.
Mortgage completion
Completion should be straightforward. Final contracts are signed, the mortgage lender and you pay the balance of the purchase price. You now become the proud owner of your new property and can now relax and get back to running your business. Before you do so don’t forget to set up the payment instructions for the monthly interest and repayments to your lender! Congratulations.
