In this article
What is a Mortgage?
The Mortgage Process Explained
Applying for a Mortgage: Offer is Accepted
Appointing a Solicitor and Surveyor
Your Formal Application
Mortgage – Key Differences
What is a Mortgage?
Although you are probably familiar with the term, it’s worth knowing exactly what a mortgage is. It’s a type of loan that you can take out and buy a home with. In addition to the loan, usually you will also have to contribute some money towards the purchase of your desired property, this is called a deposit. If you are purchasing your first home this will usually come in the form of savings, if you already have a property and want to move into another, it will be the equity you have gained from your prior property. You will borrow the money over what is called the mortgage term.
Applying for a Mortgage? The Process Explained
Before you start your application, have a think about:
- Getting familiar with the different stages in the process
- Your personal circumstances and the realistic options available to you
- Gathering all of the relevant paperwork you will need
There are a lot of different options when it comes to choosing the right mortgage and this is why some people appoint a mortgage broker. It is their role to talk you through all of the steps and find you suitable deals that match your criteria.
Key Considerations for your Mortgage Application
It’s important to build a picture of what options are suitable to you, your lifestyle and affordability.
- What kind of mortgage is best for you? There are many options when it comes to the different types. The choices can feel overwhelming, Fluent Money are on hand to work with you and talk through the options available
- Realistically how much you can afford to pay each month?
- What term would you like to pay the loan back over?
- How much deposit and/or equity do you have to put towards the property?
By working through the above questions you will begin to build a realistic picture of properties within a suitable price range.
Your Eligibility, what Mortgage Lenders look for
The next step would be to ensure that you meet the qualifying criteria. Different mortgage lenders will have different qualifying criteria that you will need to meet to get an offer agreed. Before a lender will give you an offer, they will conduct a number of checks to ensure you meet their criteria. A lender will typically look at the following in detail:
- The amount you want to borrow
- The amount of money you will be contributing to the property purchase. This will be your deposit amount that has come from savings or the home equity from your previous property
- Your employment details such as whether you are employed, or self-employed, how long you have been in your job, job title, salary, overtime, bonuses
- Your income. A lender will want to know how much money you take home each month including any salary/wages, investment income, child support etc
- The kind of home you want to buy. Some lenders have stricter criteria on certain property types such as prefab properties, ex council properties, high rise flats and properties with leases due for renewal in the short term
- Any debts you might have, this could be car loans, credit cards, personal loans
- What monthly outgoings do you have? Think about your bills, subscriptions, food shopping, any credit items you pay for on a regular basis. All these things will need to be considered
- Finding out your credit score pre mortgage application can also be useful. There are a host of companies that you can apply to and find out what your credit score currently is.
The lender will take all of the above into consideration when evaluating your application to determine whether the mortgage you are applying for is suitable for you.
Apply for a Mortgage in Principle
A mortgage in principle (MIP) is a certificate that shows how much you can potentially borrow from a provider. It gives you a more accurate indication of how much they may be willing to lend you. You can also show your MIP to any estate agent to show them that you do have real intentions to purchase the property.
Applying for a Mortgage: Your Offer on a Property is Accepted
Exciting times! You’ve had an offer accepted and you are now ready to purchase your chosen property. It is at this point that you would decide which mortgage lender and product you will apply for. When deciding on a suitable deal you will typically choose between a repayment or interest only.
Repayment mortgage: With this type, you pay back a portion of the loan and the interest each month. At the end of the term you will have paid off the entire loan (unless you missed any mandatory payments).
Interest only mortgage: You only pay a portion of the interest owed on the loan each month. At the end of the term you have paid for all the interest that was applied but you still owe the amount of money that you borrowed.
Both repayment and interest only options have certain benefits. A Fluent Money adviser will be able to answer any questions you may have on the types and help you decide which route would be best for you to take. Mortgage lenders who offer interest only options do tend to have stricter lending criteria such as they may require a higher deposit in comparison to a repayment mortgage.
When you have decided on the type you will apply for, you will also need to decide on the type of interest rate you want to go for.
Fixed rate mortgage: This is where a lender offers a flat interest rate over a specific period. It means that your monthly payments will be the same each month.
Variable rate mortgage: With a variable rate your monthly payments are normally tied to the Bank of England base rate. This means that if the ‘base rate’ rises, so will your monthly repayments. If the base rate decreases, then so will your monthly repayments.
To help you decide whether a fixed rate or variable interest rate will best suit you, a Fluent Money adviser will be able to talk you through the key considerations with both options and also work through some actual offers that are currently available.
In the UK there are many providers that offer a range of options. It’s important to consider the interest rate they are offering and also take into account all of the different charges and fees that are applicable. There are also a number of costs to take into consideration such as:
- The interest rate
- Arrangement fee
- Booking fee
- Valuation fee
- Telegraphic transfer fee
This list is not exclusive. It can get confusing when trying to compare deals because different mortgage lenders will offer different charging structures:
- Some lenders will exempt certain fees but perhaps charge higher for other fees
- Some fees are fixed and others are variable
- It can become difficult when not comparing like for like
This is where a mortgage broker can really add value to the process. Fluent Money has software that compares 1000’s of different deals available. Our qualified Adviser team have specialist knowledge about different structures and fees. This combination of software and expertise means that an appointed Fluent Money adviser can quickly compare different deals to ensure that you are receiving the most competitive deal overall.
When you do decide which mortgage lender and product to apply for you need to tell them specifically which property you are applying for and intending to secure the loan against.
When you fill out your application the provider will also ask for documents that support your application. Mortgage providers have different criteria but in the main they will all mostly ask for you to provide:
- Proof of name and address
- 3 months wage slips and a P60. If your self-employed typically, they will want the last 3 years, and they will also want proof of your earnings and usually ask for copies of your tax returns and accounts
- 3 months bank statements
- Proof of funds. This will be to prove where you have got your deposit from, so for example savings or a previous property sale.
It’s a good idea to have these documents ready so that you reduce any delays on the approval process.
How Much can you Afford to Borrow?
Find out how much you could be able to borrow for your mortgage.
Applying for a Mortgage: Appointing a Solicitor and Surveyor
You will need to appoint a solicitor and surveyor to handle the legal side of the process. They will carry out a number of checks on the property such as:
- Local Authority searches, including planning, building, highway and pollution issues
- Environmental searches, including flooding, subsidence and contamination issues
- Water and drainage searches
- They will focus primarily on the structural integrity of the property and look for maintenance issues such as subsidence, unstable walls, a leaking roof or an unsafe chimney chute. They will also provide details on the type of materials and glazing used, which is helpful when it comes to ensuring your property is efficient.
Your Formal Mortgage Application
When you proceed with your formal application the mortgage provider will:
- Conduct a thorough or ‘hard’ credit check. This search will appear on your credit file
- Evaluate the surveyor’s valuation to confirm the property is worth and what you are paying for it
If the provider is happy after they have carried out all of their checks then they will make you a formal offer. This part of the process should take approximately 4 weeks.
If you decide to accept the formal offer your solicitor will arrange for the deposit from yourself and the funds from the lender to be transferred to the person selling the property. This final stage is called completion.
Calculate your monthly mortgage repayments
Try our free online Mortgage Affordability Calculator.
How is a Mortgage Different to other Types of Loans?
Secured loan differences
A secured loan (also called a second charge mortgage, home owner loan or home loan) is an additional loan that you would take out on top of the initial mortgage you took out on your home. The initial loan you took out to purchase your home is called the primary and a secured loan is the secondary loan. Reasons for taking out a secured loan could be to make home improvements, consolidate debt, to buy out your home in full from a divorce and there are many other reasons for doing so.
Buy to let mortgage differences
A buy to let mortgage is specifically for a property that you don’t live in. You are either an ‘accidental landlord’ or you are looking to purchase a property to let out to someone else. Instances where you would be an ‘accidental landlord’ are scenarios whereby you no longer wish to live in your existing home but you also don’t want to sell it. This could be because you have decided to move into your partner’s home, or perhaps you have inherited a property that you now intend to live in instead.
Bridging loan differences
A bridging loan is a form of short term finance. They are usually taken out for a maximum term of 24 months. Lenders will also require you to already have assets to the equivalent value of the bridging loan amount or more. Sometimes a bridging loan and a mortgage could be used in combination. Perhaps you have inherited a property that required renovation works. You might be eligible for a bridging loan to release funds to carry out the renovations and then once the property is classed as a finished property you may be able then to apply for a regular mortgage.
Equity release differences
An equity release plan is a type of loan that is for retired or nearing people. There is a minimum age of 55 years to apply for one. If you are aged 55 and over and looking to remortgage then you may want to consider an equity release plan if you didn’t want to continue paying monthly payments and wanted to pay the money back at a later date. You may want to do this if you intend to retire earlier than you original target retirement date.
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