GETTING approved for a home loan could be a challenge depending on your situation.
With lenders offering mortgage rates at higher levels compared to this time last year, that task has been made even harder.
Anyone on a variable or tracker mortgage, but also first-time buyers, will be paying more on their monthly repayments.
It comes after the Bank of England hiked interest rates to 4% as inflation remains high.
During this tricky period, we've spoken to experts and put together a guide on exactly how to apply for a mortgage.
Plus, we've compiled some tips on how you can boost your chances of getting accepted.
Mortgages explained
A mortgage is a loan that you can use to help you buy a property.
On average, a mortgage lasts for 25 years but can last anywhere between six months to 50 years.
You'll make monthly payments to pay off your mortgage.
One important thing to bear in mind is that a mortgage is secured against your property so if you fail to pay it you could lose your home.
Applying for a mortgage
A mortgage is essentially a loan used to buy a house, so you'll need to apply for one from a bank or another lender.
You can apply for a mortgage once you've found the house you want to buy. That way you will know how much you need to borrow.
You'll need to save a deposit before you can get a mortgage.
The average for first-time buyers is £50,000.
But it's not impossible to raise the funds without the bank of mum and dad, like Ethan Bragginton from London who managed to buy a £135,000 house by the time he was 18.
Lenders will also look at your credit score before they decide to lend to you, so it's important that you've got a good score before you apply.
On top of this, you may also need to provide documents like utility bills, proof of benefits, your last three month's payslips, passports and bank statements.
Mortgage application approval
Usually, a mortgage application takes two-to-six weeks to be approved.
But of course, every situation is different and could depend on a few key factors.
This includes the lender you apply with, what information they've asked you for, and how complex your situation is.
The process can be accelerated if you use a mortgage broker who will be able to find you the best deals.
Usually, the application process happens in these steps:
- Finding a deal you want
- Speak to an advisor to get a mortgage in principle
- Complete the application
- Wait for your estate agent's valuation
- Your solicitor authorises the completion of the mortgage on the property
Mortgage affordability
Of course, what kind of mortgage you can afford will depend on your financial situation.
This includes your earnings, how much you spend a month and the deposit you have put down on the property you're purchasing.
Luckily, many online calculators are available to help you estimate what mortgage you can afford such as MoneySuperMarket's.
Most people get advice from a mortgage broker.
These are essentially qualified middleman who has a duty of care to recommend a suitable mortgage for you.
If you do choose to use one, you may be able to get better deals than ones offered directly by the lender, and if your mortgage turned out to be unaffordable then you can complain and be compensated.
But their services do come at a cost and you'll be required to pay a fee of around £500, and sometimes there's the agent's commission on top to think about too.
Tips to boost chances of acceptance
Here are seven tips to help increase the chance of getting a mortgage:
- Save a larger deposit. The bigger your deposit the better. This will mean more mortgage deals are going to be available.
- Credit rating. Every mortgage lender will assess your credit rating by using an agency such as Experian or Equifax to look into your financial history. Remember, this is affected by your payment history, credit usage, credit history length and credit mix so it's essential to ensure you have a good rating.
- Pay off any unsecured debts. If you have huge monthly payments then it's definitely worth paying these off before applying for a mortgage, allowing more income toward your monthly mortgage payments.
- Don't apply for any new credit. Your lender will be aware of this new payment and may wonder if you're over-stretching your finances.
- Make sure you're on the electoral register. Ensure you're registered at your current address. The electoral register can be checked by lenders for proof of residency.
- Ensure you have no financial links to your ex-partner. This can affect your credit rating. The link could be a joint bank account, credit card or loan account.
- Make sure you can prove your income. You need to do this by including your payslip, bank statement and account if you're self-employed or running a business.
Mortgage fees
Unfortunately, there are extra costs to keep in mind too.
These are as follows.
- Mortgage arrangement (product) fee. £0-£2,500. This can be paid upfront or added to your mortgage but you'll pay interest on it.
- Mortgage booking fee. £100-£200.
- Valuation fee. The average price is £300.
- Cost of a survey. £400-£1,500 depending on the survey. This is paid when the survey is commissioned.
- Broker fee. £0-£500. This fee can be reduced if your broker is receiving a commission so make sure to inquire about it. Some brokers can be free to use.
- Stamp duty. The price is affected by the property's price and if you're a first-time buyer.
- Conveyancing fee. £800-£1,500. Usually, you'll pay this, however, some lenders will pay it for you.
- Land Registry fee. Up to £500 online. This is affected by the property's price.
- Removal costs. Unless all your belongings can fit inside your car, then it's highly likely you'll want to hire a removal van which can cost between £100-£1000.
- Service charges, ground rent and upkeep. If you buy a leasehold property (meaning you don't own the land) you'll probably pay a service charge for the conservation of the property and shared areas as well as ground rent to the freeholder.
- Furniture. You'll also need furniture, otherwise, you might be sleeping on the floor.
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