After hunting for a mortgage and finding one that suits your pocket, it’s time to make a mortgage application. However, many people don’t know how to go about this process.
It ends here.
This article focuses on the mortgage application process, the options you have when it comes to mortgages and why everyone should utilize the services of a regulated mortgage advisor.
How Lenders Gauge Affordability
First off, lenders will determine your household income. This includes your basic salary and any other income you get from other jobs like freelancing, bonuses, and commissions.
The lenders will then calculate your total household expenses and any other deductions from your account such as debt payments on credit cards and loans. They will then decide whether you have any leftover cash capable of covering your monthly mortgage installments.
What’s more, they’ll test whether your excess money can survive an increase in interest rates or any other potential change of circumstances.
Furthermore, they’ll also perform a credit check with one of the credit reference bureaus to check on your financial history. This will help them perform a risk assessment on you.
How to Prepare for a Mortgage Application
Before applying for a mortgage, you need to get your credit report from at least two of the main credit reporting agencies. Equifax and Experian and widely used by the lenders themselves so are both good choices. Once you have the reports, scrutinize them for any incorrect or negative items.
Documents You’ll Need
After going through your report, collect all the documents you might need during the application. They include:
- Utility bills
- Proof of benefits
- A P60 form the employer
- Pay slips for the last three months
- Your driving license or passport to prove identity
- Bank statements of at least three months
- If you’re self-employed, you’ll need an accountant to verify statements of at least two to three years.
- A tax return form SA302 for self-employed people with more than one source of income.
- Bank statements or other relevant documents to support your tax returns if you’re self-employed
All documents should be accurate to match the information provided during the application.
Is it a Remortgage?
If you’re looking to remortgage an existing mortgage, you might be required to go through another round affordability checks. Afterwards, the lender will give you advice on whether a remortgage will be the best way forward.
Are You Looking for an Interest-Only Mortgage?
Not all lenders issue interest-only mortgages. However, if you’re looking for such a mortgage, you’ll have to prove you can repay the loan. This can be through your regular income or other sources of financial capability that falls within the individual lender’s criteria.
Always Seek Professional Advice
If you’re unsure about your loan options or any part of the mortgage application process, you should always seek professional advice from a trusted mortgage advisor. Independent mortgage brokers such as the mortgage broker or an independent financial adviser are the best options when it comes to mortgage advice.
A skilled professional can also help you look for the best commercial mortgage lender and a good deal.
Estimate the Cost of Your Mortgage
A broker, IFA or a lender will do these calculations for you. Nevertheless, ensure you get all the details of the loan including fees, conditional charges, and early repayment penalties.
Mortgages can be pretty complicated, which is why you need to be careful and well informed when it comes to the application process. If you feel the process is beyond you, let your trusted mortgage adviser do the heavy lifting for you. They understand mortgages inside out, they deal with lenders on a daily basis and they know what each lender wants to see on an application form. This will make the whole process as simple and as stress free as possible.
James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.