How to apply for a mortgage
Applying for a mortgage, whether the first or a subsequent time, can seem a daunting task – with lenders, brokers, solicitors involved, and requiring your up-to-date financial information and status.
Before applying for a mortgage it’s useful to know what the process involves and what’s required from you, and whether or not you are a likely suitable candidate for one.
What lenders will need
Lenders look at three different things when you apply for a mortgage. These are:
- Your income
- Your credit rating
- This should be straightforward, especially if you are PAYE. Your lender will usually require 3 – 6 months of payslips and a P60 from your employer.
Note that mortgages offered are usually 4 or 5 times your yearly income, individually for one applicant or jointly for two or more applicants.
- An affordability assessment takes a more all-round look at your finances, establishing your likelihood of being able to afford monthly repayments based on more than your income alone. Not only do lenders want to see if you can afford the repayments but whether you have any buffer for increased interest, for example (‘stress’ test). It considers not just your income but your outgoings as well – your financial commitments from month to month, and how much income you have spare.
- Lenders will also want to look at your credit history. This tells them what you are like paying your bills, or whether you have a history of falling behind with payments, CCJs and so on. It lets them know the likely risk of them lending to you.
How to apply for a mortgage if you are self-employed?
Lenders will take in to account the above however will you need a minimum of 2 (often 3) years of certified accounts, with the books to show evidence of this.
How to apply for a mortgage with a low credit rating
- Check your rating first, in case there are mistakes on your report or you’re not certain of your financial history. There are multiple agencies who can provide them, some of which charge, however there are some who offer the service for free.
- Often you will be advised on how you can help improve this score, especially with premium services. This might be through paying unpaid debt, or sometimes even taking out a credit card if your score is low through inactivity as opposed to bad financial management.
Organise your paperwork
If you’re reasonably confident you are in a position to apply for a mortgage it’s useful to collate the information and documents you know you will likely need. These include:
- Proof of identity e.g. passport, drivers licence
- P60 (if PAYE)
- 3-6 payslips (if PAYE)
- 3-6 months’ worth of bank statements
- 2-3 years’ worth of business accounts if self-employed
Broker or aggregate
Not only is it burdensome to approach multiple lenders yourself, multiple applications can affect your credit score and you may not get the best deal available.
Brokers traditionally work on behalf of applicants, scouring the market for the best available deal based on the applicants own position. Often these incur a fee however applying for a mortgage online through Your Prosperity can mean the same access to the market, without the fees.