Applying for a mortgage – top tips

Applying for a mortgage is rarely a straightforward process. Your mortgage is likely to be the biggest financial commitment you’re ever going to make – with lots of decisions to make, forms to fill in and waits for lenders to respond.

In April 2014, the process was made even tougher with the introduction of new rules on mortgage affordability.  The Mortgage Market Review (MMR) was introduced to make mortgage lending more responsible and stable.

Lenders are keen to know whether you’ll you be able to afford your monthly repayments should interest rates go up or if your circumstances change.

So they’re likely to pay close attention to your income, monthly outgoings and savings as well as the information in your credit report and application form.

Experian’s mortgage application guide lays out the steps to take when preparing to make a mortgage application.

Buying a home
Buying a first home can be an overwhelming process for a first-time buyer, especially when you think about the range of mortgages on the market and the number of mortgage providers. But don’t worry – with research, preparation, patience and our handy guide, you’re on the right road to finding the mortgage that will best suit your needs.

First time buyers – some key FAQs:

I’m hoping to buy a house. What is the first step in getting a mortgage?
Before you even apply for a mortgage, you need to work out whether you can afford it. If you don’t have your eye on a property right now, then it’s worth looking at how large a mortgage you can afford.

An online mortgage affordability calculator can be a useful way of doing this. You can find these on many lenders’ or price comparison websites. The calculator can work out how much money you can borrow based on your personal income, monthly outgoings, how many years you need the mortgage for and how large a deposit you have.

What type of mortgage should I go for?
The type of mortgage you choose will make a difference to the amount that you repay every month, so you need to think it through carefully.

–          Fixed vs variable

  • A fixed rate mortgage, as the name suggests, is where the monthly payment doesn’t change for a set period of time, such as three or five years. First-time buyers often go for the security of a fixed-rate mortgage, as this can help with your monthly budget planning.
  • With a variable rate mortgage, your monthly payment can go up or down, depending on the terms of the mortgage and how it is linked to, typically, the Bank of England rate. So while they may be lower than a fixed rate to begin with, for instance, they may go higher.

–          Repayment v interest-only

  • With a repayment mortgage, you are paying off the interest and some of the capital, so the value of the mortgage goes down over time and you will have paid everything off by the end. Choosing one or the other will come down to what you can afford.
  • An interest-only mortgage often means your monthly payments are a lot cheaper, but the value of the mortgage doesn’t go down and you will need to put money aside to pay it off at the end of the term.

It’s worth noting that there are a number of specific products for first-time buyers including shared ownership and the Government’s Help to Buy loan scheme. Mortgages for key workers, such as nurses, are another option.

Do I need a mortgage broker?
You don’t have to use a broker – you can go directly to a lender, such as your own bank, or do your own research. Each route has benefits. With your bank, you already have a relationship and that personal knowledge can work in your favour. However, they will probably only tell you about their own mortgage products.

Brokers are more specialised, but you need to check if they are ‘tied’ to a limited range of lenders – meaning they will only look at mortgages from certain providers. Independent brokers will be able to give you the low-down on the whole market, comparing offers, interest rates and deals. They could help you compare overall costs and find the most appropriate deal. If you’re looking for the best deal available, then a broker may be the best option – but don’t forget to factor in any fees they might charge.

How long will it take for my mortgage to come through?
The first step is to get a ‘mortgage in principle’ agreement from your lender. This says what they are prepared to lend you and at what rate, and is useful as it shows estate agents and sellers that you are a serious buyer.

Once you have found the house you want to buy you then apply for a full mortgage offer. The lender carries out checks on your income – including a credit check – and your references. You will also need to get a survey on the house you want to buy, to prove to the lender that it’s worth the price you are paying. If all is fine, the offer is sent to you and your solicitor. The time taken from application to being accepted varies, but generally takes no longer than a month. On the day of exchange the mortgage lender sends the money to your solicitor to complete the purchase.

Do I need to use a solicitor to get my mortgage?
No. A solicitor can be helpful in reading through your mortgage offer letter and explaining the conditions – but their main role comes when you actually find the house you want to buy, as they help with issues such as exchange of contracts with the seller, and registering you as the new legal owner.

Is there a best time to apply for a mortgage?
It really depends on your personal circumstances and how determined you are to get on the property ladder. It’s worth making sure your finances are in order and that you can afford the move. You may want to consider whether having a larger deposit would give you a better mortgage choice. Lenders like steady incomes, so perhaps it isn’t the best time to change your career or even quit your job before applying!

Is there anything else I can do to boost my chances of getting a mortgage?
Income plays a major part in whether you get approved and the size of your mortgage. You also stand a better chance of securing the best rate by checking and understanding your credit report.

A good report can not only boost your chances of being approved, it might help you get a mortgage at a lower rate, which will mean lower monthly repayments or possibly the ability to borrow more.

Can my rental payments help me get a mortgage?
Experian’s new partnership with Credit Ladder means that rental payments made by private tenants will now be recognised on credit reports in a similar way to mortgage payments.

Already, a million social housing tenants are in line to benefit from Experian’s Rental Exchange, with potential access to better rates on credit, and the new move means that paying rent through Credit Ladder can help private renters to experience similar benefits.

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