Buying a home is an exciting and significant milestone, but it can also be a complex and daunting process. For most people, a mortgage is the largest financial commitment they will ever make, so ensuring you are well-prepared for the application process is essential.
Today, we will guide you through the steps of preparing for a mortgage application in the UK, from understanding your financial situation to gathering the necessary documentation:
1. Assess Your Financial Situation
The first step in preparing for a mortgage application is to take a close look at your finances. Lenders will assess your affordability based on your income, expenses, and any outstanding debts. As such, it is essential to have a clear understanding of your financial position before approaching a lender. Start by:
- Reviewing your credit report: Obtain a copy of your credit report from a credit reference agency and check your credit score to ensure all the information on the report is accurate. If you find any errors, contact the credit reference agency to have them corrected.
- Calculating your income: Make a note of your annual salary, including any bonuses or commissions you receive. If you are self-employed or have an irregular income, you may need to provide additional documentation, such as tax returns or bank statements, to prove your income.
- Listing your monthly expenses: Calculate your regular monthly outgoings, including rent or mortgage payments, utility bills, and insurance premiums.
- Paying off debts: If you have outstanding debts, try to pay them off or reduce them as much as possible before applying for a mortgage. This will improve your affordability and increase your chances of being approved for a mortgage.
2. Save for a Deposit
The size of your deposit can significantly impact your mortgage application, as it will affect the loan-to-value (LTV) ratio and interest rate. In general, the larger the deposit, the better the mortgage deal you can secure. Aim to save a minimum deposit of 5% of the property’s value, although a 10-20% deposit will give you access to more competitive mortgage rates. Keep in mind that there are government schemes, such as Help to Buy, that can assist first-time buyers with smaller deposits.
3. Research Mortgage Options
There are various types of mortgages available in the UK, so it is essential to understand which one is best suited for your needs. The two main types of mortgages are fixed-rate and variable-rate mortgages. Fixed-rate mortgages have a set interest rate for a specified period, while variable-rate mortgages have an interest rate that can change during the mortgage term. Consider how they differ so you can choose the right one.
4. Get a Mortgage in Principle
A mortgage in principle, also known as a decision in principle or agreement in principle, is a conditional offer from a lender that indicates how much they may be willing to lend you. Obtaining a mortgage in principle before starting your property search can provide you with a clear budget and demonstrate to estate agents and sellers that you are a serious buyer. Note that a mortgage, in principle, is not a guarantee of a mortgage, and the final offer will depend on a full application and assessment.
5. Gather Your Documentation
When applying for a mortgage, you will need to provide various documents to support your application. These may include:
- Proof of identity: A valid passport or driving license
- Proof of address: A utility bill or council tax statement from the past three months
- Proof of income: Payslips from the past three months or, if self-employed, tax returns and bank statements from the past two years
- Bank statements: From the past three to six months, showing your income, outgoings, and any savings
- Details of your deposit: Documentation to prove the source of your deposit, such as a savings account statement or a gift letter if the deposit is from a family member
Conclusion
Preparing for a mortgage application can feel overwhelming, but by following these steps and doing your research, you will be well-equipped to secure the best mortgage deal for your needs. With the right preparation and support, you will be on your way to homeownership in no time at all!
At Everest Mortgage Services, we recognise that life is full of important choices, particularly in regard to your financial situation. Whether it’s obtaining a mortgage for your initial home, acquiring a loan for a major purchase, or ensuring your family’s security with life insurance, there’s a lot on your mind. So, if you’re looking for the best mortgage company to make obtaining simple and quick, reach out to us today!
