Borrowers always consider the application procedure for a mortgage, complicated and lengthy. The reality is, with a systematic approach and correct knowledge of the included formalities, anxiety on this part can be nullified. From the ‘How to Apply’ procedure to the documents required, everything is decided. The only need is to know things with the necessary details. If you are planning to apply for a mortgage, the knowledge of the required elements is essential.
Most of the applicants express their anxiety on the application part to the mortgage companies. Being an online broking service provider, Shine Mortgages is here to clarify their concerns.
Applying For the Mortgage: Information Banks or Lenders Want To Know
To apply, you need to know the elements that the lenders consider to process the application. Here are those necessary aspects that come under consideration.
Employment stability proof
Repayment capacity of the borrower is the prime concern of the lenders, and that can be confirmed through the stability on earning part. For the purpose, a glance, at the employment history of the fund seeker becomes vital.
- Salary slips to confirm the amount and regularity of your income
- Bank statements of salary accounts
- Appointment letter issued by the company when you joined
- A letter from your company as proof that you work there (To present to the lender when you apply)
All the above documents are vital to prove that you are backed-up by the necessary earning capacity. A confirmation on this part makes the mortgage provider take the lending process further.
Credit History
In simple words, credit history is your past payment record. The mortgage providers are keen to check this to know your financial behaviour in the previous and recent years.
Lenders check your credit history due to following reasons –
- How responsible you were in debt repayments
- Are there any missed or delayed payments
- What kind of credit mix you have. For example – Having only credit cards and no loans is not good. Similarly having only loans is not the sign of a healthy credit mix and thus affects history.
Deposit Size
The advance money that covers a particular minimum part of the total property value is the deposit money. Its minimum percentage is 5%, but it is always advisable to provide more substantial deposit.
- Big deposit/down payment justifies the financial capacity of the applicant.
- The lender does not lose its customer because the applicant could not qualify for a large loan amount.
For people with good credit score (881-960) minimum deposit amount is five per cent while for those with poor credit score, it can go up to 20%. Besides, it also shrinks the need for the loan amount, which makes qualifying for the mortgage easy for the borrower.
Savings
Your savings show your financial discipline to the mortgage provider.
- More significant savings leave a good impression on the lending company and attainment of approval becomes easy.
- It also denotes the presence of a right balance of income and outgoing as a person cannot do good savings with many expenses.
It is better to have a big nest egg at the time when you apply for mortgage. Start gathering funds at least 6 months before you apply.
Guarantor
It is another unavoidably important factor where mortgage companies bear no compromise. From excellent to bad credit score applicant, everyone needs to bring a guarantor to back the loan application.
Your guarantor should have –
- Good credit score
- A property or a strong equity back-up
- Debt-to-income ratio minimum 60:40. (60% income 40% outgoing)
- Regular and good income that is sufficient to cover the mortgage repayments if required
- Salary proof of last one-year
Property Type
The property market is full of risks, and the return on money invested depends on the type of property.
Type can be distributed on three significant aspects
| STRUCTURE | CONSTRUCTION TYPE | USE |
|---|---|---|
| Flat, Terraced house, End of Terrace, Cottage, Studio flat,Detached, Semi-detached, Bungalows. | Standard and Non-standard | Residential, Semi-residential (residential + commercial) |
It is essential to know the type for the lenders because, on some properties, mortgage companies do not provide funds. At least most of the lenders do so. For example, it is usually complicated to get funds for studio flats. The smaller the size of the property, the lower is the saleability of the structure. Same is the case with the semi-residential buildings. Also, on the construction part, non-standard construction is never favoured by the lending companies. Rest of the types are fine to apply for a mortgage due to their profitable status. In short, forget not to mention the exact nature of your property while applying for the loan.
Payment Record of Past 2 years
Although the mortgage provider scrutinizes your complete credit history in the last two years just before you apply for a mortgage are crucial.
Lenders want to know two important things -
- How timely you paid the bills?
- How sincere were you about debt payments in the past two years?
A spotless record during this time gives confidence to the loan provider that if it lends money to the person, there is no or rare chance of default.
What documents do you have to submit for a mortgage?
To present all your reservoirs in front of the team of broker’s expert; be cautious because these documents work as a bridge for final approval:
Documents for Standard mortgage
- Bills like electricity, gas etc.
- Evidence of benefits received
- Recent salary slips from your previous company
- P60 form from your workplace
- Id proofs like driving license or passport
- Bank statements of your current account six months
Documents for a self-employed person
- Bank statement of two to three years’ from an accountant
- Papers related to tax return form SA302 if you have earnings profit from more than one source
- You can look to provide information alongside their tax return, which supports what the SA302 says about their income, such as bank statements
How Much Mortgage Can You Afford?
To be rational, this is something that cannot have a precise answer because the mortgage market works through a procedure. There can be no automated or fixed response to the questions that need calculations.
The affordability of an applicant depends on varied factors, and they include the following ones -
- Domination level of debts over income. An applicant with a 60:40 ratio gets smaller amount than the one with 80:20 and 70:30 ratio.
- Monthly income of the applicant
- The income of the guarantor as well as the credit score
- Credit mix
- LTV percentage offered by the lender
Steps to applying for a mortgage
All the lenders and brokers have different application procedure. It is better to stay neutral and know about a general application procedure that applies to all. A systematic process explained below is perfect to follow and reach to the desired outcome with no or less mess.
Primary preconditions to apply – Polish your personal financial details
Before you apply, there are some circumstances that you need to consider to play safe and get smoother on the property ladder.
Check your credit score and report
You know how curious the finance companies are about the credit scores. They reflect the financial behaviour of a person ACCURATELY. You need to first check your credit score, as ignorance on this part presents you as a less responsible applicant. Also take a look at your credit report to know if you are going well in your transactions or not.
Improve money habits if the report shows any delayed payments
From utility bills to debt payments, everything should be paid on time. If there is even a single payment that you have made late, then act cautious. Embrace sincerity and stop making mistakes that may cost you later in the form of rejection.
Choose a broker to find you a suitable lender
In the abundance of options and with less or no knowledge of the mortgage market, many borrowers fail to find a reliable lender. As a result, they consider many options at the same time and make multiple applications inviting search footprints, which finally degrade credit rating. A broker brings to you the most relatable deals. It saves time as well as ensures safety from the pit falls.
From the offered options, pick one that you find better on interest rates and repayment part.
Now comes the application process
This stage brings the need to give attention on the fact that nowadays financial services are available online now. From application procedure to approval decision, you can do things online. In place of making physical appearance in the office of the mortgage provider, exploit their online presence. Here is the precise picture of the application stages that you need to cross.
- Step 1 -
Visit the website of the lender/broker and fill out the mortgage application with your necessary financial and personal details - Step 2 -
The approval decision comes. Most of the mortgage providers and broking companies arrange instant approval decision. - Step 3 -
Once you are approved, home inspection happens as the final formality - Step 4 -
Once the inspection report comes with an ‘OK’ remark sign your loan agreement - Step 5 -
Within the time committed by the mortgage provider money gets transferred to your account
Do not forget, stay transparent and hide no information as detection of hidden facts about your finances at a later stage may cause rejection. Honest applicants always get desired results.
ShineMortgages is always on the brighter side when it comes to winning the trust of the mortgage applicants. We are determined to strengthen that trust through round-the-clock efforts and the unbiased assistance we provide.