We are aware that getting a mortgage might be stressful. During the home-buying process, bank statements, credit scores, interest rates, loan estimates, closing disclosures, and more can truly weigh you down. We’re providing you with a short list of dos and don’ts to assist you sort through the confusion and speed up the mortgage application process so you can concentrate on the enjoyable part: choosing your ideal house!
We’ll go over the dos and don’ts of applying for a mortgage as a first-time buyer in the UK. You may steer clear of typical problems during the mortgage application process and move on with your first home purchase by keeping this straightforward advice in mind.
1. Do get pre-approved for a mortgage before you start looking for properties to buy.
Mortgage pre-approval typically includes credit checks and verification of income. It’ll give you a good idea of whether or not you’ll be able to get a mortgage for the property that you’re interested in buying, meaning that there’s less risk involved when making an offer on it.
2. Don’t apply for a mortgage if you have any doubts about your financial situation or ability to repay it
It’s easy to get carried away during the process of making an offer, as it means more than just paying a hefty deposit. It’s important that you have a good idea of your financial situation and your affordability – it may be worth waiting until you’re in a more secure position financially before purchasing a home.
In the UK, mortgages with low deposit rates are less common than they used to be (although this is slowly changing now with the introduction of 95% mortgages) but it might not even matter how much deposit you put down as long as your credit score is healthy.
So don’t worry – as long as you stay within your affordability range you’ll most likely have your mortgage offer accepted.
3. Don’t forget about additional costs – factor in at least 10% of the price as an annual maintenance budget
It is easy to get carried away with excitement when buying a new home but just keep in mind that the mortgage isn’t the only cost you will have! One thing you should always remember: don’t underestimate how much it will cost annually to maintain your new property; include at least another 10% per year on top of your initial budget.
These include mortgage repayments, maintenance, insurance costs, stamp duty, legal fees, moving costs, etc.
4. Do check all the key details
We recommend that you keep top of mind, the dates of your surveyor’s valuation and solicitor checks. It’s common for these to change, especially if you’re part of a chain.
Read Also: Fixed Rates Versus Adjustable Rates
Another important detail not to be missed is the date your mortgage offer expires. The offer will usually last for around six months, so make a note of when it ends to ensure you complete your home buying process before it expires. If the purchase falls through and your mortgage offer expires, you can contact your lender to ask for an extension.
5. Do get the help of a mortgage broker
Going at it alone will make the whole process more overwhelming – Do get advice from an independent financial adviser before making any decisions A mortgage broker can offer you personalized advice on the best mortgage deal to pick for your circumstances. They can save you money, time, and stress when it comes to navigating the complex world of mortgages, plus assist you with your application.
A mortgage broker specialist will be able to tell you about the different mortgage offers available on the market and help you find a deal that’s right for your needs. They will also provide unbiased advice when it comes down to mortgage deals that are fairly similar in terms of rates etc., as they can assess what would work best based on all of your individual circumstances (such as how much deposit you have, your employment status), so there should never really be any need to go at it alone!
Sign up for a FREE account today and schedule a call with a mortgage broker specialist. Your credit score plays a huge part in a future homebuyer’s ability to secure a mortgage. Just by looking at your credit score, lenders make assumptions on how likely you will be to make your payments on time, every time. Scores can range from 300 – 850 points and take the following into account:
Avoid applying for new credit before looking for a home loan as it will increase your debt-to-income ratio, aka DTI. That’s the difference between your overall debt and your income. Postpone large purchases (like a new car or vacation) that you would put on credit. Limit spending altogether (you want to save up for your down payment, right?) or pay in cash when possible.
6. Do understand what your affordability is
Mortgage providers calculate the amount they will lend you by looking at your annual income and your expenses. They’ll usually cap the amount you can borrow at between 4 and 4.5 times your salary, but they must do an affordability assessment before they can make you a mortgage offer.
You can work out roughly how much you’ll be able to borrow on the MortgageLadder web app. Plus you can get access to a personalised checklist and advice to improve your time-to-own.
7. Don’t bend the truth – Give accurate information
Don’t miss any details. Be sure to review your application carefully before submitting your signature. Mortgage lenders perform extensive checks of the information you give them in your application. Much of it requires evidence such as payslips, bank statements, and letters. With your income, make sure you also enter in any bonuses and commissions you get separately, instead of adding them to your basic salary.
Your mortgage application will include details of how much you earn and what percentage of that is spent on day-to-day living costs, to help the lender work out whether you can afford repayments (including interest) if mortgage rates rise in the future.
8. DON’T make big splurges
It is best to wait until your mortgage offer has been accepted before making any drastic changes to your lifestyle. This includes changing address, changing your name, switching jobs or making any large purchases. The lender will have to update these details in your application, which might slow down the whole process.
Getting a new job, where you may earn less, will affect how much you’ll be able to borrow. And making any big purchases could have an impact on your deposit savings, as well as your credit score, depending on your payment method. Applying to borrow money with a credit card, overdraft or loan could also wreck your chances.
9. DO stay Resilient
As a first-time buyer, you should prepare for a few speed bumps on the way to homeownership. Remember that old saying: patience is virtue? Well, it might just come in handy in this setting. Don’t give up, stay resilient, and keep going – stick to these “dos” and “don’ts” and you’ll be well on your way to get your mortgage.
The mortgage application process can take up to six months—sometimes longer if it’s a complex case; this is especially true for first-time buyers, who may not have all their paperwork in order or have a specific background so they are more likely to be turned down by lenders.
A mortgage application may not be deemed complete until certain documents are submitted to prove your income, employment status, credit history or whatever other requirements for that specific mortgage type. That means there could be some delays in processing your loan if missing documentation isn’t provided quickly enough. So make sure everything’s got its place before beginning this long-term project – it’ll save time and money later on down the line!
That’s one of the reasons why you want to get proper guidance from a mortgage advisor, as he can help you avoid these obstacles and keep the process moving.
What is The Main Function of a Mortgage Company?
A mortgage company is a specialized financial firm engaged in the business of originating and/or funding mortgages for residential or commercial property. A mortgage company is often just the originator of a loan; it markets itself to potential borrowers and seeks funding from one of several client financial institutions that provide the capital for the mortgage itself.
That, in part, is why many mortgage companies went bankrupt during the subprime mortgage crisis of 20008-09. Because they weren’t funding most of the loans, they had few assets of their own, and when the housing markets dried up, their cash flows quickly evaporated.
A mortgage company is a financial firm that underwrites and issues (originates) its own mortgages to homebuyers, using its own capital to issue the loans. Also known as a direct lender, a mortgage company typically only specializes in mortgage products and does not offer other banking services such as checking, investments, or loans for other purposes. Moreover, they will usually offer their own products and will not offer loans or products from other companies.
Many mortgage companies today operate online or have limited branch locations, which may reduce face-to-face interaction but could, at the same time, lower the costs of doing business.
While a mortgage company will originate loans, they may not service your loan, or keep it on their balance sheet for long. Indeed, many times, a mortgage lender will sell the loan (individually or bundled together with others) to a third-party mortgage servicing institution such as an investment bank, hedge fund, or agency like Fannie Mae or Freddie Mac. While this typically has no bearing on an individual borrower, this practice has been criticized for creating an abundance of subprime debts that ultimately led to the 2008-09 financial crisis.
The Equal Credit Opportunity Act prohibits credit discrimination based on age, race, color, religion, national origin, gender, marital status, or because you get public assistance. It’s also illegal for lenders to discourage you from applying or to impose different terms or conditions because of these factors.
Each mortgage lender will need information in order to give you an offer. They may have some of this information already but they may need to collect more. But you will also need to give your lender a pack of documents. Your real estate agent may be able to grab some of the harder-to-find items, such as property taxes.
Your lender should guide you as to what to send and when, but they are likely to need:
Employment
• Name of current employer, phone, and street address
• Length of time at current employer
• Position/title
• Salary including overtime, bonuses, or commissions
Income
• Two years of W-2s
• Profit and loss statement if self-employed
• Pensions, Social Security
• Public assistance
• Child support
• Alimony
Assets
• Bank accounts (savings, checking, brokerage accounts)
• Real property
• Investments (stocks, bonds, retirement accounts)
• Proceeds from the sale of your current home
• Gifted funds from relatives (e.g. a down payment gift for an FHA loan)
Debts
• Current mortgage
• Liens
• Alimony
• Child support
• Car loans
• Credit cards
• Real property
Property information
• Street address
• Expected sales price
• Type of home (single-family residence, condo, etc.)
• Size of property
• Real estate taxes (annual)
• Homeowner’s association dues (HOA)
• Estimated closing date
Credit history
• Bankruptcies
• Collections
• Foreclosures
• Delinquencies
This last item—your credit history—is one of the most important elements in getting your mortgage approved. Because of this, it’s a good idea to check your credit report beforehand to see where you stand. You’re entitled by law to one free credit report from each of the three main reporting bureaus each year. Be prepared to explain any missteps in your financial background. It’s good to have dates, amounts and causes for any of these parts of your history.
Finally, it prohibits lenders from denying mortgages to retirees if all standard criteria are met—things like your credit score, the size of your down payment, your liquid assets, and your debt-to-income ratio. Although it is unclear how long the trend will continue, positive economic data indicates that for the immediate future homebuyers can continue to benefit from low mortgage interest rates.
