Preparing Your Mortgage Application
We are going to look at how to get you ‘mortgage ready’ through preparing your mortgage application and how you go about completing this.
What does it mean by being mortgage-ready?
The first step is that we normally have an initial five or ten-minute chat over the phone and then look to book an appointment to discuss things in more detail.
On that call, we make you aware of what you need to bring along.
The key things are:
- Dates of occupancy (when you moved in and out of addresses for the last three years)
- Dates of employment (when you started work with your employer)
- Your income
Documentation is the key to providing this information. For example, bank statements and payslips, they’re going to provide much of the information that we would need.
Lenders want to know a lot of information when they are deciding as to whether to lend or not.
Accuracy is key. Lenders want to know exact dates that you moved in and out of properties, when you started with employers, when you took out credit agreements, when they’re due to end, what outstanding balances are on things like loans and credit cards.
How would I know if I’m going to be approved for a mortgage?
An experienced mortgage adviser should know whether you will be approved or whether you will be declined for a mortgage.
Ultimately speaking, the decision lies with the lender and lenders are assessing risk whenever they look at a mortgage application.
The real answer is no, you don’t know whether you will be approved, but a good experienced mortgage broker should be able to give you a very good idea as to whether you will be approved or whether you won’t be.
Just because you’re not approved by one lender doesn’t necessarily mean to say that you won’t be approved by another. So, again, a good mortgage broker will know what lenders may be more likely to lend to you as opposed to others.
What could I do to improve my chances of getting approved?
There are quite a few things that you can do here. Referring back to the documentation here, the most important piece of document that you can obtain is your credit reference report. Also, when we look at improving your chances of obtaining a mortgage, it’s really important that you understand your credit reference report and that it looks as positive as it can do.
There are various things that you can do to improve this.
One of the most important things is making sure that you’re registered on the electoral roll. A lot of people get this confused with the council tax register. It’s not the council tax register. It’s making sure that you are registered to vote.
This is a huge tick for lenders, they want to know that you’ve registered on the electoral roll because it’s the only real way that they can track your movements. They’re looking for confirmation of what addresses you’ve lived at because they want to see whether there is any credit associated with those addresses that you’ve been living at.
Without being registered on the electoral roll, it makes it harder for a lender to identify where you’ve been resident. If you want to improve your chances of obtaining a mortgage and you’re not already registered, do this as soon as possible.
Should we keep existing credit cards, even the ones we don’t use. How does this work?
First of all, this is probably aimed at first-time buyers. When a lender is looking to approve a mortgage application, they are assessing the likelihood and the risk of you repaying your mortgage or not repaying your mortgage on time every month. If you have got existing credit commitments like a bank loan, car finance, or credit cards, then it’s really easy for lenders to see what your repayment behaviour is.
For example, do you pay your credit card on time every month without fail? This demonstrates you’re a good risk to a lender. If you don’t have a credit card, then it’s a good idea to get on. You want to be able to demonstrate to a lender your ability to obtain and repay credit.
Only ever spend what you can afford to spend. Set the monthly direct debits up with that credit card provider to ensure that the balance is paid in full at the end of every month. This demonstrates to a lender your ability to manage credit and it increases your credit rating quite significantly. This demonstrates to a lender that you are a good risk. You can obtain credit and you can repay it.
That’s a good tip for first-time buyers or anyone. It’s less likely that a home mover would need that because typically speaking, they’ve demonstrated their creditworthiness with an existing mortgage. So this is aimed more towards first-time buyers.
In terms of credit cards or the number of credit cards that you have. Lenders look at the availability of credit, as much as they look out for what the outstanding balances are on credit cards. It’s quite common to see multiple credit cards on somebody’s credit file and only two of them being used. Typically, that’s because people do a zero percent balance transfer to take advantage of the zero percent interest rate for an initial period.
The problem that lies here is, people don’t cancel those previous credit cards. When a lender looks at your credit file, they might get a bit nervous that you’ve got access to an awful lot of unsecured credit, and whether that puts you at a greater risk to them. Some lenders would say, yes, it does.
Ultimately, if you’ve got credit cards that you don’t use, then cancel them. Especially if they are high-interest credit cards.
Tip: Keep a couple of credit cards that you use regularly, but cancel the ones that you’re no longer actively using.
Is reviewing your credit score a must and is this something you would need from a credit report?
The more accurate your mortgage application is and the more it reflects that credit report accurately, the more serious lenders are going to take you. They recognise that you’re taking the application very seriously and you are fully aware of what your financial picture is.
Making sure that you review your credit score regularly puts you in control. It makes sure that you’re aware of what is going on, who’s reporting what about you. More importantly, if something is registered or reported inaccurately on your credit report, then you can act upon that. You can get it rectified so that it doesn’t adversely affect you moving forward. It’s crucially important to be aware of what your credit report looks like.
There are many credit reports available now. The two biggest typically are Experian and Equifax, but there are many others. More often than not, you can now obtain a copy of your full credit report for free.
Why wouldn’t you do it? It’s available for you at potentially no cost.
So, having a bigger deposit and cutting any kind of debt are going to help, right?
Yes absolutely. Everything about you goes into a lender deciding on whether they will lend. For example, what you do for a living, how much you earn, what your address history is like, all sorts of things.
You have to earn a certain amount of points to obtain a mortgage in the eyes of a lender. Every question that you’re asked on a mortgage application can represent a certain amount of points. Whether you’re single, whether you’re married, whether you have children, how many children you have, your occupation, all of these things amount to a certain amount of points.
Another factor that a lender is looking at is the property and how much risk is associated with the property. The condition of the property for a start, the type of property that it is, but also how much equity is in that property. So how much of your own money are you going to put in towards this purchase? The more of your own money that you put in, the less of the money that you’re asking for. Therefore, the risk is lower. This is called ‘loan to value’ and the ‘loan to value percentage’.
For example, If you have to be putting in 25 percent of the value of the property, then the loan would be 75 percent loan to value. This is a really important milestone and lenders have certain milestones in terms of if you’re borrowing up to 50 percent of the value of the property, it represents the lowest risk.
If you’re borrowing up to 75 percent of the value of the property, it’s a higher risk, therefore you need to earn more points than what you did at a 50 percent loan to value. The same again at 80/85 percent loan to value and 90 and 95 percent loan to value. Effectively, the more money that you can put in, the lower risk you represent to the lender. The more likely they are to approve a mortgage.
How long does this kind of process take or how long does it take to get your mortgage application or mortgage offer?
This can vary. It depends on the type of mortgage application. For example, a purchase application might take longer than a remortgage application. A buy to let mortgage application might not take as long, they tend to be quicker due to the nature of buy to let mortgages not being regulated.
Again, looking at this loan-to-value scenario. If you’re borrowing 50 percent of the value of the property because the risk is so much lower to a lender, then they are less likely to ask for as much supporting documentation.
They may not even want to do a physical inspection of the property. They may be happy to do what we call an automated or desktop valuation on the property. It’s not uncommon for low loan-to-value mortgages to go through very, very quickly.
Whereas perhaps a first-time buyer, buying with a minimal deposit, lenders are going to want to assess that application in greater detail. Realistically, you’re probably looking at two weeks before a lender is happy to make that decision.
As a result of Covid19, things have slowed down without a shadow of a doubt. Lenders are taking longer, they’ve got their challenges with having staff working at home reliant on third parties such as solicitors and surveyors that are also doing their very best in these challenging times.
At the moment, the process is taking longer than usual. Ordinarily speaking, it would normally take around two weeks from the mortgage application to the mortgage lender fully approving that mortgage. You’ve then, of course, got the legal process to add on to that. The work that your solicitor does for you, in terms of making sure that all the boxes are ticked from a legal point of view, and making sure that the property ownership can be transferred over to you.
Look at the whole process from the point of viewing a property:
- You have your offering
- Your offer accepted
- Submitting your mortgage application
- Mortgage being approved
- All of the legal work being done and ready to exchange contracts complete
- Move into the property, typically around eight to 10 weeks.
This is assuming there are no nasty hiccups along the way, and assuming that the chain is moving along at the same pace and everybody is working towards that same end goal and a relatively short completion date.
Where do you fit in that then? How do you help me through this?
A good mortgage broker will understand the market. They will understand the changes. They will understand which lenders have the appetite to lend, which lenders perhaps don’t understand. Or, they should know where best to place your mortgage application.
Sometimes, it’s as much about the process as it is about the mortgage product. When do I make an offer on a property? When do I even discuss my mortgage? It’s having somebody to guide you through that process.
First things first, ascertain how much you can borrow. Make sure you can afford it. Make sure that you’re comfortable with what your monthly mortgage repayments will be. Now you know what your budget is, you can go out and start looking at properties.
Once you’ve found that property and your offer has been accepted, knowing that you’ve got a good relationship with a broker, they’ll help you understand the legal process. They’ll help you with what needs to be done and when it needs to be done.