Applying For A Mortgage – What You Need To Know
Applying for a mortgage can often seem daunting, most people being unsure of the process involved. However, this should not be the case. In the following guide, you will be taken through the mortgage application process, where the key stages will be explained so you can fully understand your options.
Finding your dream home is an exciting time, and one you should enjoy, but this can be difficult to remember when there are worries about saving up a house deposit and the thought of then keeping up with mortgage payments each month.
Nonetheless, it can all seem a lot less overwhelming when you are aware of what to expect at each stage in the mortgage application, how long everything will take, and what you are able to afford.
Depending on your personal circumstances, taking out a mortgage can be a very lengthy process, and it is unrealistic to leave it until the last minute. Being prepared can sometimes be the difference between getting the house of your dreams, or having to settle for less. Learning the processes involved with purchasing a house makes it much easier to start your application sooner, and it also allows you a few months to prepare for the future and what is to come.
If you want any more advice or information, simply contact Orchard Mortgage Solutions.
The first step of the mortgage application is the pre-application preparations. Before you even apply for a mortgage, it is vital that you ensure you’re in a good financial position. A negative credit report could deter lenders, as this is their way of understanding how efficiently you manage money. You could gather credit reports, often free of charge, and check to see if there is any information which could prevent your application from being accepted. This is also a great time to check the information on there is correct, and if not, contact the agency so the error can be amended.
2. Initial application
Once you have found the ideal mortgage based on your preference and your situation, and you are happy to proceed, the chosen lender will be contacted for a Decision in Principle (DIP), also called an Agreement in Principle (AIP). Whilst this is not the full application, this is the lender’s introduction to you where your information is shared with them; the DIP being subject to the full application and underwriting, as well as a satisfactory valuation.
This is an agreement between you and the lender in which they promise that they’ll accept your mortgage application as long as the information you have provided can be validated as correct.
3. Assessment and affordability checks
After your mortgage application has been submitted, your application will then be underwritten further by the lender. At this stage, you will be required to provide your lender with lots of documentation to support your application, such as payslips and bank statements. You will also be required to provide sufficient proof of ID in order to verify your identity.
An affordability assessment is also carried out, which will look at your disposable net income to decide if the monthly payments would still be affordable if interest rates were to rise, even if you are on a fixed rate. This is protection for not only you but for the lender, should the Bank of England drastically increase the interest rates.
A surveyor will then carry out a valuation of the property you are looking to buy at the request of the lender and will assess the value of the property, as well as its suitability as security for the mortgage. Sometimes, a property may need repairs to be carried out, or the asking price is unrealistic; in these situations, it can be possible to renegotiate with the vendor.
The valuation is paid for when the full application is submitted to the lender, not when a DIP is secured. This is typically explained by your mortgage adviser ahead of time, as to not surprise you with any undisclosed fees.
Once the affordability checks have been initially passed and the property has been valued by the lender, your lender will then send you a legally binding mortgage offer. You can sometimes be given seven days in which to decide if you wish to accept the mortgage offer, but many lenders often skip this step as it is assumed their offer has been accepted.
Up until you exchange contracts, you can cancel your mortgage application at any point; once contracts have been exchanged, you are legally bound to follow through to the last stage of the mortgage application process – completion. It is worth noting that if you were to cancel your application, you may lose money, the amount depending on how far through the application you are.
Once the mortgage offer from your lender has been accepted, there are only two majorly important steps left; signing of contracts and the transferring of your deposit money. A date for you to sign the contracts will be confirmed through your solicitor, as well as confirmation the deposit has been transferred.
A mortgage does not cover 100% of a property’s purchase price, which is why a deposit is required to cover the difference between the purchase price and the mortgage amount. Typically, a lender will want you to pay a deposit of 10% or more, but will often accept no less than 5% dependent on the circumstances.
How long a mortgage application takes varies from person to person, as it will be dependent on your unique situation as well as the efficiency of the lender. You could have a more complex situation which requires more communication between you and the lender, or there could be an issue with some of the documentation you provided. Whilst a complex situation does not mean you will not be accepted for a mortgage application, it is worth remembering that it can sometimes delay the process.