The mortgage application process can be overwhelming, particularly if you are a first-time buyer.
Understanding the mortgage application process is important to enhance the chances of becoming a homeowner and reduce the guesswork.
Let me explain the full mortgage application process in ten steps with practical tips to simplify the process of becoming a homeowner or landlord, moving home or saving money on your remortgages.
Let’s get started.
Step 1. Get organised prior to starting the mortgage application process
Mortgage lenders have different lending criteria and documentation requirements to process mortgage applications.
However, if you can organise the following commonly required mortgage requirements before you start the mortgage application process, you can save a lot of precious time and avoid hassles during the process of buying a house or going through a remortgage.
Organize your documents
Following are the six fundamental requirements of most mortgage applications:
- Proof of ID
- Proof of Address
- Proof of Income
- Details of your financial commitments
- Your credit score
- Proof of deposit (for purchase only)
You may need to tick more boxes depending on your circumstances; however, if you can organise the above before you start the mortgage application process, you’ll be way ahead of many homebuyers.
Let’s see what specific items you should have in place to satisfy the above requirements.
Proof of ID
For British citizens, your passport or a driving licence is the best form of proof id. However, if you are a foreign national, proof of residency/visa will also be required to full fill the ID requirements.
Proof of address
A driving licence, if not used for ID purposes, can be used for proof of address. Other commonly used documents for proof of address are:
- Bank statements
- Mortgage statement
- Credit card statement
- Council tax bill
- Utility bills (excluding mobile phone bills)
- HMRC letter
A document used for proof of address must not be older than three months.
Proof of income
Documentation required to prove your income depends on your employment situation. Most people receive income through the following sources.
Employed
Your latest payslip if you only started your job or an employment contract if you haven’t got your first payslip along with your latest three month’s bank statements.
However, if you are employed for more than three months, you’ll need your latest three (8 weekly payslips if paid weekly) along with your latest three most recent bank statements.
To prove bonuses, commissions and other regular incomes, you may also need P60’s for the last two years or payslips, which include bonuses & commission amounts.
Self-employed
Mortgage lenders classify you as self-employed for the purpose of assessing your income if you are a sole trader, partnership or LTD company shareholder with more than 20% shares.
As a self-employed person, you’ll require the following documentation to prove your self-employment income:
- Latest tax calculation – also commonly called SA302 (ideally for the latest 3 years)
- Along with corresponding tax year overviews (ideally for the last 3 years)
Some lenders can work with:
- Accountant reference (Subject to acceptable accountant qualification)
- Company accounts (Ideally for the last 3 years)
There are few lenders who can lend LTD company shareholders based on your business’s net profit before tax plus your salary instead of your dividends plus salary. If you are an LTD company director who keeps the profit in the company, working based on your company accounts can substantially improve your affordability.
Contractors
Proof of contracting income can be complex, depending on the type of contract. Please use the following as a starting point only.
Your mortgage broker should be able to advise you of the more accurate proof of income requirements as per your personal circumstances.
Contractors can be treated as self-employed or employed for income verification purposes if there is 12 months or more continuous employment history, with 6 months of the contract remaining, or 2 years continuous service (for the last 2 years as at the date of application) in the same type of employment.
The contractor who pays their own tax, or it is deducted by the umbrella company (including IR35)
- Copy of latest contract
- The latest payslip required (or where payslips are not issued, the latest bank statement).
For affordability, the lender usually uses the gross value of the contract or income calculated from the payslip/bank statement, which is lower.
Fixed/Short Term or Agency; tax is deducted by the employer (not including IR35)
- The latest payslip must be used to evidence income
- or the latest 3 payslips where other income is being used.
Construction Industry Scheme Contractors (CIS)
If you are a CIS contractor, you’ll require the latest 3 months consecutive payslips/invoices/statements along with corresponding bank statements (this could be from the same or different contracts) at least to evidence the income.
UK land & property income
Most lenders require at least two years of tax calculations along with tax year overviews to consider this income for mortgage affordability. However, there might be some lenders who can consider ASTs along with rental bank statements for rental proof of income.
You must check with your broker for your options before starting your mortgage application process.
Review your financial commitments
Check your credit report and bank statement for regular outgoings.
A few things you can do to sharpen your credit score:
- Reduce outgoings. End the subscription you are not using anymore and negotiate with utility providers to reduce your outgoings.
- Never miss a payment. Missing payments on your credit accounts can have a bad impact on your credit score.
- Rectify errors. If you notice any mistakes on your credit report, it’s important to get them rectified as soon as possible.
- Get onto the electoral roll. It is the single biggest thing to improve your credit score. If you are not registered to vote, you can do so online at any time through the register to vote website – it takes less than five minutes.
- Avoid multiple credit searches. Multiple credit searches within short periods of time can affect your credit score badly. You should avoid this.
- Keep your credit usage low. A large amount of unsecured credit makes your mortgage affordability complicated in general, and high usage of your credit limits makes it even worse.
- End financial connections. Check and end old financial connections from your credit file. Old financial connections with bad credit can affect your marriageability.
All these housekeeping measures will add up to help you increase the chances of getting a mortgage with the best possible mortgage product.
Step 2: Contact your mortgage broker to start the mortgage application process
It is time to get in touch with your mortgage broker to start the mortgage process. If you have done your homework, which I explained in step 1, you should be off to the races with your mortgage application when you contact your mortgage broker.
Your regulated mortgage broker will explain to you the service details he can offer you including products, costs, regulatory status & privacy policy details.
Step 3. Fact find
Your mortgage broker will complete the fact find to assess your:
- Mortgage needs
- Affordability (incomes and outgoings)
- Your risk attitude
- Your preference about different types of mortgages
- Property details
- Estate agent details for valuation purposes (purchase only)
- Your solicitor details
Also, have a discussion about your plans to afford the mortgage over the term of the mortgage to ensure you understand that the mortgage is a long-term financial commitment.
Your broker will also request the required documentation to support your application.
Step 4. Mortgage recommendation
After completing the fact find and reviewing your documents, your broker will research the market to find the best suitable mortgage as per your needs & demands.
He will share and go through the following to support his recommendation:
- Mortgage research. Details how he searched the mortgage product.
- Affordability check. Run through the lender’s affordability calculator to ensure the loan is affordable.
- Mortgage illustration. In this document, you’ll find complete details of the recommended mortgage product.
Once you’ll be happy with the recommendation, your broker will move to the next step to get you the formal approval from the lender.
Step 5. Decision in Principle
A decision in principle or mortgage in principle is an important milestone in your house buying process.
A common outcome when you apply for a decision in principle:
- Accept. Best outcome and means you are all set to proceed with the full mortgage application. The lender does not start any underwriting & valuation instruction until the full application is submitted.
- Refer. It means an underwriter needs to review the application before a lender can give you the decision.
- Decline. It could happen for several reasons. However, if this happens it is worth checking the reason with the lender before getting depressed.
When a lender accepts your mortgage in principle, it means you have passed the lender’s credit score and your final mortgage approval is subject to underwriting & satisfactory property valuation.
Step 6. Full mortgage application submission
Your broker will submit the full mortgage application once your application has been approved in principle & your offer on a property has been accepted in the purchase cases.
You’ll also need to have the following before a full application can be submitted for processing:
- Property details, which you are buying (for purchase only)
- Estate agent details for valuation (for purchase only)
- Solicitor details (if legal are not provided by the lender)
Lenders process mortgage applications differently with varied processing timeframes. Your broker should be able to give you a rough idea of the particular lender processing approach and response time.
Step 7. Underwriting
The lender’s underwriter assesses the information provided in the application along with the supporting documents.
Mortgage underwriting requirements vary from lender to lender as every lender has a different mortgage lending criteria.
Some lenders are quite easy to work with and ask for the minimum paperwork, however, some lenders want to see everything they can. This is why it is important to seek professional mortgage advice before choosing the right lender as per your needs & demands.
The cheapest mortgage product from a lender who is quite bureaucratic & requires a lot of time in processing could cost you a property purchase where moving with speed usually is the essence.
Step 8. Property valuation
This is another critical milestone in the mortgage application process. Particularly for purchases because often estate agents don’t take the property off the market until they book property valuation.
Some lenders instruct property valuation on submission of the application and some go for a valuation after full underwriting. Another critical aspect of choosing the right mortgage lender.
There are three types of property valuations:
- Basic valuation for lending purposes
- Homebuyer report
- Structural survey
Lenders require a basic valuation for lending purposes only. You should seek professional advice if you are not sure which type of valuation you should go for before buying the property.
Step 9. Mortgage offer
On receipt of the satisfactory property valuation report, the underwriter does the final assessment before issuing a mortgage offer.
A mortgage offer takes all the guesswork out.
For example:
- Will I get a mortgage?
- Will I get the mortgage amount I need?
- Will property valuation come back as expected?
Once you have the mortgage offer in place you can move forward confidently to complete the legal work to complete your purchase or remortgage.
Step 10. Legal work to complete your mortgage
This is the final step in between you & your homeownership journey. For purchases at least two solicitors are involved and how long will it take to complete this step depends on several factors.
For example:
- The processing speed of solicitors
- Searches timeframe
- Are you & your vendor wants to complete asap?
If there is a chain, it gets even more complicated.
Bonus step
Buying a house is one of the biggest financial transactions most people do in their lifetime.
It is highly recommended to explore your protection needs to protect your biggest financial commitment in case of anything unexpected happens. There are different types of protection products available & you should speak with your broker to seek protection advice as per your needs.
Conclusion
A mortgage application process is complicated and can be quite stressful. However, an experienced mortgage broker can help you simplify the process and enhance your chances of becoming a homeowner, landlord or save money on your remortgage.
If you have found this guide helpful, please consider sharing it with family & friends. Sharing this guide can help me spread the word out, and someone become a homeowner, landlord or save money on a remortgage.
