Making sure that you have everything ready for your mortgage should start months before the application itself - getting your finances in good order is every bit as important and remembering that last bit of paperwork! Here to help is the definitive The Mortgage Hut Application Checklist!
The very early days
One of the very first things you should consider when deciding to buy yourselves a home is the deposit. This is the single most difficult part of the mortgage process for most people, as deposits represent a significant investment on your part.Assuming your finances are in order, you should be looking for between 5% and 10% of the property value as a deposit - and the more you can afford to save, the better the mortgage deal you will be able to get.
There are a few ways to secure a deposit, but the single most common way to do so, is simply to save for it. It can take years to save the right amount of money, but it is worth it in the end. It’s also possible to get help from family or close friends - this type of deposit is called a gifted deposit.
If you are buying your first home a Lifetime ISA is the best way for most people to save for a deposit. Through the scheme, the government will top up your savings with a 25% bonus up to £1,000 per year; it’s a good way to get a helpful extra boost.
Often you will want to get a joint mortgage too. This will help as there are two people saving, and if you are using the Lifetime ISA scheme, it’s possible to get an extra £2,000 each year.
Currently, the average price of a home in the UK is £233,000. This represents a minimum deposit level of £11,650; over two years of saving for most people, even with the ISA addition - so starting early is key!
Deposits when you already own a home
If you already have a property, it is usual that you do not save a new deposit, but use the equity in the property to obtain a mortgage for the move.Equity is the value of the home that you own, easily calculated as the market value of the property minus the remaining balance of the mortgage. A £300,000 property with £180,000 remaining on the mortgage has equity of £120,000 or 40%. The LTV on this example property is 60%.
Moving to a £400,000 property and using the full £120,000 equity above would require a 70% LTV mortgage - something that would be considered by most lenders.
Deposits for buy-to-let mortgages
When you are looking to buy a second property as a buy-to-let investment and become a landlord, the deposit criteria is somewhat stricter. Lenders are likely to offer 75% or lower LTV mortgages, meaning a deposit of 25% or more.Some people remortgage their main property to raise the capital for a buy-to-let property.
One year to six months before application
Your credit history is a significant part of the mortgage providers risk assessment. Making sure your financial affairs are in good order will make all the difference. Part of that is taking the time to regularly check on your credit report and maintain a good level of money management.Checking your credit report
In the UK, there are three Credit Reference Agencies (CRAs) who keep a record of your credit history; these are Experian, Equifax and TransUnion.You are fully entitled to see your record online for free, and all three companies provide portals for you to do so. It is a good idea to register and regularly make your own check on your report to see what is being held about you.
You can contact the CRAs to amend any mistakes if they exist, and work to improve any aspect of your report that is potentially damaging.
Improving your credit report
There are a number of things you can do to improve your credit score and build a good report, including:- Pay off unsecured debt - if you have any personal loans or other unsecured debt, it helps a lot if these are paid off in full before your application for a mortgage. This includes making sure you are not regularly going into your overdraft, whether pre-arranged or not.
- Have a well-managed credit card - a credit card that’s been overused is not a good sign, but a well managed card that is regularly paid back can actually boost your credit score. Look to maintain a low value card with regular use and consistent payments.
- Put bills in your name - regularly paying your energy bills, internet or mobile phone contract will show on your credit report but it can’t if you are not the named account holder! Make sure bills that you pay every month are registered to you in order to show your good management.
- Close unused accounts - dormant credit accounts can damage your score. Close off anything you are not using.
- Distance yourself from old poor connections - your credit history includes an association with anyone you have been financial involved with. This can include ex-partners and sometimes old roommates who may not have a good credit report. Contact the CRAs and update them on your relationships to fix any bad associations.
Improving your debt to income ratio
Debt to income ratio (DTI) is another factor that lenders use to assess your application. It is a percentage figure based on your monthly debt payments divided by your gross monthly income - you can learn more about calculating your DTI in this article.If you debt to income ration is high (above 40%) then this may impact your mortgage chances. Try to pay off debt to lower the ratio well in advance.
Increasing affordability
Your affordability can be thought of as the level of disposable income you have each month once all your standard outgoings are accounted for. Similar to debt to income, your affordability score helps the lender understand if you can afford the monthly repayments on the mortgage.If you find yourself struggling at the end of each month waiting for the next payday, then you are likely to have low affordability.
Affordability can be improved through shedding your financial burden of unnecessary things. Outgoings like unused gym memberships, entertainment subscription services, gambling or eating out can all be cut back to improve your overall financial position.
Affordability with buy-to-let rental properties
The requirements for good affordability with a buy-to-let property are somewhat more relaxed, as the lender assumes that the rental income for the new property will be used to cover the monthly mortgage payments.While this makes it easier on your personal finance, you will need to prove a strong business case for the desired investment property, including showing an expected rental yield 150% or greater than that of the mortgage repayments.
Three months to go
A few months before you plan to apply for a mortgage, it is a good idea to check basic things like your identification documents to make sure they are all up to date and valid. If you don’t have online and app banking, it's time to put that in place now.Things worth checking include:
- Making sure your passport is correct and valid for the next six months
- Having the right photo and address on your driving licence
- Tidying up bank accounts if you have multiples, clearing any overdrafts etc.
- Setting up online, app and phone banking
One month to go
At this stage it’s important for you to carry out the research you need to so that you have a good idea of fees and budgeting. Are you a first time buyer, or do you need to consider stamp duty? Do you have a preferred conveyancer?Do you want a fixed-rate or tracker mortgage?
This is when you contact us at The Mortgage Hut! As a mortgage advisory service, our team are here for you to help answer all of these questions and help you find the mortgage that best suits you.
We will openly discuss all the additional costs with you and make sure you have a full understanding of the process before you go ahead with the final application.
The decision in principle
Before you can go forward and make an offer on a house you will need a decision in principle. This is obtained after an initial credit check by the mortgage lender, and will give you an agreement that the lender is willing to provide the final mortgage assuming no problems occur during the final application.With a DiP, you are able to view properties, find the house you want and make an offer.
To obtain the decision in principle you will need proof of identity and UK address.
Mortgage application paperwork
Once you have put in your offer, it just remains to finalise the mortgage. The paperwork needed for your mortgage application form is there to confirm your identity and legal status in the UK, and to provide evidence on your financials to show that you can afford the monthly repayments.Getting a Mortgage through The Mortgage Hut
Securing a mortgage isn’t the easiest thing in the world - it’s a lot more difficult than a run to the supermarket for bread and milk - however, with the right mortgage advice it can be a smooth process leading to a desirable outcome.At The Mortgage Hut we take care of all the difficulties so that you don’t have to. Not only that, but our advisors are here to explain everything to you in language that you can understand.
We can’t manage your finances, but outside of that we’re here to take on every burden! Why not fill in our contact form to find out more, or give one of our specialist advisors a call today?
The Mortgage Hut application checklist
Months before application
- Deposit saved
- Credit report checked
- Registered for electoral roll
- No unsecured debt
- Named on utility bills
- Well-managed credit card in use
- Dormant credit accounts closed
- Old financial connections removed
- Debt to income ratio calculated and improved
- Outgoings cut back
Run up to the application
- Update all identification documentation
- Clean and prepare banking accounts
- Contacted The Mortgage Hut and spoken to an advisor
Final application - mortgage document checklist
- Identity documents
- Three months of bank statements
- Three months of payslips and P60 form (if employed under PAYE)
- Up to three years of company accounts (if self-employed or company director)
- Full property details
- Proof of deposit