Getting a mortgage approved to buy a house is an incredibly exciting prospect. It can also seem particularly daunting, as it involves financial checks and paperwork. However, with the right preparation and approach, the process can be straight forward. Below, we outline the key steps to help you secure mortgage approval and guide you through the home-buying process.
Preparing for a mortgage
Before you even start searching for a house, it’s a good idea to have a clear understanding of your financial situation. Mortgage lenders want to approve mortgages but they also need to ensure you are able to keep up with monthly repayments.
Start by monitoring your outgoings over a few months. This includes regular payments such as rent, utilities, car finance, and subscriptions. Lenders will want to know about your monthly commitments, as this affects your ability to repay the loan.
Reducing unnecessary expenses and making sure you’re not living beyond your means can strengthen your application. Try to clear any outstanding high interest debts, as this can improve your credit score, which will be a key factor in whether your mortgage is approved. If you find your finances are out of control, start a spreadsheet to monitor the ins and outs. If you are in debt read our guide here.
Roughly calculating how much you can borrow
Once your finances are in order, it’s important to have a rough idea of how much you can borrow. While each lender has different criteria, many use a general rule that your monthly mortgage repayment should not exceed a third of your monthly income. The total loan you can get depends on various factors, including your income, outgoings, credit history, and the deposit you can put down. The more substantial your initial deposit, the lower your monthly payments will be.
Preparing your documents
To streamline the process, gather the necessary documents early on. Lenders will ask for a range of documents to assess your financial position. Commonly required documents include:
- Proof of identity: Passport, driver’s licence, or similar.
- Proof of address: Utility bills, bank statements, or government correspondence.
- Income proof: Recent pay slips, tax returns, or self-employed accounts.
- Bank statements: Typically, lenders will want to see several months’ worth of statements.
- Deposit evidence: You may need to show where your deposit is coming from, whether it’s savings or a gift from family.
Having all your documents prepared in advance will help to speed up the application process. It’s worth noting that if you are self employed you will need to have 2-3 years’ worth of financial income history before getting a mortgage approved.
Appointing a mortgage advisor
While it is possible to apply for a mortgage directly through a lender, appointing a mortgage advisor can simplify the process and provide valuable guidance. A mortgage advisor will assess your financial situation and help you find the best deal based on your needs. They will also ensure that all paperwork is in order and can guide you toward lenders that offer better terms, potentially saving you money over the course of your mortgage.
Mortgage advisors can also help you avoid common pitfalls, such as applying for a mortgage that you are not likely to be approved for, or submitting incomplete documentation.
Applying for the mortgage
With your finances prepared and a mortgage advisor in place, it’s time to start the official application process. The first step is to decide on the type of mortgage you want, whether it’s a fixed rate mortgage or a variable one. A fixed rate mortgage will provide steady payments that are fixed for a period of usually 2 to 5 years. This is especially important if interest rates are on the increase. A variable rate mortgage can be useful even though it’s typically more expensive than a fixed rate. If the interest rate drops you will then pay less each month. A mortgage in principle can quickly tell you how much you’re able to borrow. It’s useful to get one before house hunting so you’ve got a good idea of what you can afford. You won’t need to provide all of your details, just some information on your income and spending.
One you’ve found a property you want to buy you can apply for the actual mortgage. Once the application is submitted, lenders will assess your financial history, including your credit score and past borrowing behaviour. This process can take anywhere from a few days to a few weeks, depending on the complexity of your financial situation.
Common things that prevent mortgage approvals
While it’s crucial to ensure your financials are in order, there are a few common factors that can cause a mortgage to fall through. Understanding these can help prevent unnecessary delays or rejection.
- Poor credit score: A low credit score can make it difficult to get mortgage approval. Lenders view this as a sign of financial instability, which increases the risk of lending. If you’re worried about this you can check your credit score on sites like Experian for free.
- Insufficient deposit: Most lenders require a deposit of at least 5–10% of the property’s value. The more you can put down, the more likely you are to be approved and secure a favourable interest rate. If your deposit is too low, lenders may consider you a higher risk. For first time buyers the percentage of deposit required can be up to 15%.
- Income instability: Lenders like to see a stable income history. Self-employed individuals or those with irregular income might have more difficulty proving their ability to make consistent repayments. However, having 3 years’ worth of history should be enough.
- High debt-to-income ratio: If your existing debts are too high compared to your income, lenders may be concerned about your ability to repay the mortgage. Paying off as much debt as possible before applying can improve your chances of approval.
- Problems with the property: Lenders will conduct property valuations to ensure the home is worth the price you’re offering. If the property is valued lower than expected or there are significant structural issues, this can prevent your mortgage from being approved.
- Not meeting affordability criteria: Each lender has different affordability criteria based on your income and outgoings. If your monthly commitments are too high relative to your income, the lender may reject your application, regardless of your credit scor
Conclusion
Securing mortgage approval requires a combination of careful financial planning, understanding the mortgage market, and preparing all the necessary documentation. By getting your finances in order, understanding how much you can borrow, and seeking expert advice from a mortgage advisor, you can increase your chances of a smooth and successful application process.
It’s important to remain patient throughout the process, as the journey from applying for a mortgage to receiving approval can take time. Keep an eye on your spending, prepare all necessary documents, and choose a home that fits both your budget and the lender’s criteria. With the right preparation, you’ll be well on your way to owning your dream home.
