Mortgage Process: How to Get Your Home
From saving up a deposit to finding the right mortgage, here's the road to buying a home.
Unless you are super wealthy, it’s likely you will need to take out a mortgage to buy your own home. However, while the loans themselves may be simple, the mortgage process can seem complex, particularly if it’s not something you’ve done before.
Don't worry — here's how you can reach your goal.
Save a deposit
The first stage for all of us is saving some money to use as a deposit. At the moment, you can’t get a mortgage for 100% of the purchase price — you will need to put down a deposit of at least 5% to 10%.
There are tangible benefits to saving a larger deposit, though. As the size of your deposit increases, so too will the number of mortgages you have to choose from, while the interest rates charged on those home loans will fall.
Ask yourself how much you can afford to borrow
Once you start getting a deposit together, the next big question is calculating roughly how much you might be able to borrow.
Each lender employs their own affordability tests, based on your income and spending habits, so the amount they will lend you may vary. However many lenders have mortgage calculators on their sites which will give you a rough indication of how much they offer you. This may be around three to four times your annual salary.
» MORE: How much mortgage can I afford?
Get a mortgage agreement in principle
An important early stage in the mortgage process is getting a mortgage agreement in principle (AIP) from a lender. This is when a lender takes a slightly more detailed look at your financial situation and calculates whether it would likely accept a full application from you, and also approximately how much it would be prepared to lend you.
When you attempt to buy a property, having an AIP can add credibility to your offer as it gives the seller the confidence that you have the funds to complete the purchase.
It also gives you a more informed idea of how much you can afford to spend on your new home, so you can focus your efforts rather than risk falling in love with one that’s out of your financial reach.
Find the right mortgage
Once you have an offer accepted on a property, it’s time to make a formal mortgage application.
This does not have to be with the lender that provided your initial AIP. You can search the market and compare the different products on offer.
» COMPARE: Mortgage rates and deals
Alternatively, you can use a mortgage adviser. These independent intermediaries will discuss your circumstances with you, and can guide you to lenders who are most likely to accept your application. Mortgage advisers also have access to some lenders and products you cannot get as a direct borrower.
Some advisers charge a fee for their advice, while others provide it free of charge but earn a commission from lenders.
Apply for a mortgage
Once you have identified the mortgage you want, you need to make an application. If you use a mortgage broker, they will do this for you.
The lender will want to see proof of your income and expenditure, and so will typically ask for things like three months of payslips, your most recent P60 and at least three months of bank statements. If you are self-employed, the lender will want to see your tax return and accounts for the last few years. They may want proof of your deposit too.
You will also need documents to prove your identity and address. This may include things like energy bills, your driving licence or a passport.
If you are well prepared, and have all those documents to hand, you likely can complete the application within a few hours.
» Ready to get started? Learn how to apply for a mortgage
How long does it take to get a mortgage?
Unfortunately, the timescale for getting a mortgage can vary sharply between lenders.
Getting an AIP is relatively quick, perhaps just a couple of hours. But the period from the mortgage application to actually receiving an offer can take around six weeks.
This process can take even longer if your circumstances are a little complex — for example, if you are self-employed — and the lender needs to ask for more information about your finances.
The lender will also want to send a surveyor to visit the property, to calculate what it’s worth and therefore what it is willing to lend you.
How long does a mortgage offer last?
This will vary by lender, though typically your offer is valid for three to six months from the date of offer. However, at the moment many lenders are willing to extend your mortgage offer deadline if your move has been impacted by the coronavirus pandemic.
If you don’t manage to complete your home move by the offer deadline, you will need to start the application process again. This may mean you end up with a more costly rate than the original product you went for.
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John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more