How does the mortgage application process work?
The mortgage application is made up of three key steps.
- Getting a mortgage agreement in principle
- The mortgage application and offer stage
- Completing your home purchase
We will briefly summarise the key stages in the mortgage application process below before elaborating more much further down.
Getting a mortgage in principle:
This is a key step in the mortgage application process as it lets you know if a mortgage lender is willing to lend to you and how much they may be willing to lend to you.
This is not a firm offer and the facts surrounding the mortgage agreement in principle could change at any point and hence the mortgage agreement in principle may not reflect what you end up getting offered as a mortgage.
Mortgage agreements in principle also aren't guarantees. You could still have your mortgage application declined at any point during the mortgage application process even though you have a mortgage agreement in principle.
A mortgage broker may advise you on your mortgage options before you make a mortgage agreement in principle application.
The mortgage application and offer stage:
Once you have gotten your mortgage agreement in principle](https://blog.huuti.co.uk/mortgage-in-principle/) you will then go property shopping, find a property and then make an offer on a property.
Once you have made an offer you will likely then come back to the mortgage lender who gave you a mortgage agreement in principle and look to get a mortgage offer to do this you will have to put in a mortgage application.
This is a key stage of your mortgage application process and any mistakes you make hear could cost you a lot of time and increase your mortgage timeline of moving houses or buying a new home.
In some cases when shopping for a house you may realise that the mortgage agreement in principle you have isn't good enough as it may not cover the full property price you have now found or the mortgage lender may have made it clear on the mortgage in principle that they don't lend on the types of homes you have found.
In this case, you should speak with your mortgage broker and decide what the next course of action in your mortgage application process should be.
Completing your home purchase:
Completing your home purchase is a key step in the mortgage application process as a lot of things could potentially fall apart here and you could even have your mortgage offer withdrawn.
At the completion stage, your conveyancer and the seller's conveyancer will be working to complete all the legal searches and ensure every legal advice that could be given on the property has been given and that the property is fit for both the mortgage lender and yourself
What is a mortgage?
Before we look into the mortgage application process lets look into the mortgage basics.
A mortgage is a loan you have take out to purchase a property. Most commonly for you to buy a house, but they are also used for commercial properties if you are running a business. Mortgage can either be capital repayment: this is when your monthly repayments include both the capital and interest or Interest only: this is when your monthly repayments are only the interest element of the mortgage and the capital remains the same for the term of the loan. You will then have to pay off the capital borrowed in one lump sum at the end of the term.
Types of mortgages
There are two main types of mortgages that are primarily used.
The fixed rate:
Whereby the interest rate stays fixed and your monthly repayments do not move up or down.
The variable rate:
Where the interest rate may move up and down and your monthly repayments may move up or down.
The type of mortgage you want to take out can affect how much you are able to borrow as they will have different affordability assessments during the mortgage application process.
The Mortgage application process;
So you have saved up your Mortgage deposit and now you are ready to get your mortgage application going but you are wondering to yourself. Whats the mortgage application process like?
So here is how the Mortgage application process works, how long it takes and who’s involved
The first step in your mortgage application process will be for your mortgage broker or advisor to conduct a mortgage factfind where they will collect all the information they can about your circumstances so they can make a good mortgage product recommendation for you.
Your mortgage broker will make a product recommendation and obtain an agreement in principle from a Mortgage Lender.
This could be obtained in as little as 15 minutes from start to finish or as much as 3 days.
A mortgage agreement in principle could be valid for 30 to 90 days depending on the lender.
Assign a Conveyancer (solicitor):
Conveyancing is the legal process that transfers a property from one person to another.
The conveyancing process is a requirement in any mortgage application process.
Licensed conveyancers are specialist property lawyers, who do all the legal paperwork, Land Registry and local council searches, draft the contract and handle the exchange of money.
This can cost up to £2,000.The lender will also carry out checks on the property to ensure it meets their criteria. The conveyancing process can take anywhere between 1 week and 4 weeks.
Get a Mortgage offer:
In some cases, your mortgage broker may find you a better mortgage deal rather than the one you took out your agreement in principle with.
This is a good time to carry out your property survey and obtain buildings insurance quotes and cover.
Getting a mortgage offer could take from a few hours to a week in some cases.
At this point in the mortgage application process, you now have a Mortgage offer from the Lender and your solicitor can begin the exchange of contracts phase.
After this stage, you cannot pull out of the deal if not you may lose your property deposit or reservation fee and any fees you may have already paid to the mortgage lender.
After the exchange of contracts are done, your solicitor obtains the mortgage funds from your lender and pays for your new home.
This could take between 1 days and 7 days.
You are now officially home and the mortgage application process is now over:
Don't forget you have other fees to pay for your new home such as the stamp duty which is due 30 days after completion.
Mortgage fees you may face during the mortgage application process
Below is a list of fees you are likely to be charged during your mortgage application process:
Due to the robust checks and processes in completing a mortgage, there’s a lot of paperwork involved.
This fee pays for the costs that the lender has accumulated through maintaining and setting up your mortgage application.
The valuation fee:
This pays for the lender to carry out a basic inspection of the property you wish to buy to ensure that it is secure in the right areas and meets their criteria. Most importantly they need to verify that it is worth the money they are lending you if not the loan to value on the mortgage offer could change or the mortgage application could be declined.
Typically to handle the hefty paperwork and more commonly, the conveyancing of the property.
Mortgage Broker fees:
If you go with a mortgage broker they may charge a fee for organizing the deal and completing the mortgage application process on your behalf.
This is paid on completion of purchasing your home and is only applicable to homes worth over £125,000. This is not associated with your mortgage application, but purchasing the house itself.
Mortgage fees after the mortgage application process
Once your mortgage has begun you may incur further costs. We have listed below two fees mortgage borrowers are commonly charged.
Early Payment fees:
Some mortgages will charge you for paying them off earlier. You should keep a lookout as sometimes this fee can be thousands of pounds as it is charged as a percentage of the loan.
You will be faced with a mortgage exit fee by closing your mortgage account.
This will occur during completion of your mortgage, switching to another deal or switching to another lender. The mortgage exit fee varies from lender to lender but is generally under £250. If a remortgage becomes a must do then you may not be able to avoid this charge.
What documents do you need for the mortgage application process?
To make sure you save time during your mortgage application process and to avoid the prospect of rejection then you must get your paperwork together in advance of meeting your mortgage broker.
Original documents are the only type of documents most mortgage Lenders will accept.
Your documents must be original documents rather than printouts or photocopies.
Here is a list of documents a mortgage lender may request:
- Your last three months’ bank statements: if you are self-employed this will include your business bank accounts as well.
- Your last three months’ payslips
- Proof of bonuses/commission
- Your latest P60 tax form (showing income and tax paid from each tax year)
- Your last three years’ accounts or tax returns(usually for self-employed)
- Proof of deposits (eg, savings account statements)
- ID documents (usually a passport or UK driving license)
- Proof of address (eg, utility bills or credit card bills)
- A deposit gift letter. If you’re getting deposit help, the lender needs to know it is a gift (not a loan), and that the giver won’t part own the home as this could change your eligibility for a mortgage with the lender.
Can you afford a mortgage?
Before starting the mortgage application process you should know if the lender will take you or at least have a basic understanding on if you will be eligible for a mortgage.
There are a host of calculators that can assist you to some degree but here are some basics to get an understanding of if you are mortgage ready yourself.
The first things you need to work out are:
How much do you make per month?
Subtracting your monthly expenditure from your monthly income will give you your monthly disposable income.
Most lenders may want your monthly mortgage repayment to be maximum of 40-60% of your disposable income. It is unlikely they will accept anything above 80% as this doesn't give you much room.
How much do you have for a mortgage deposit?
The next step is to figure out how much savings you have for a mortgage deposit, Is this at least 5% of the total house price? If not it is highly unlikely you won't be able to get a mortgage through conventional means and should consider the available government schemes below:
You may be able to use some home buying government schemes for first-time buyers and home movers which could increase your mortgage deposit or reduce the total cost of purchasing the property.
- Lifetime ISA- gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA- gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy- same as above.
- Right to acquire- same as above.
You may also be able to use a host of mortgages with the help of your family.
They are a certain type of mortgage known as a family springboard mortgage, they include mortgages from lenders such as the Barclays family springboard mortgage, the lloyds lend a hand mortgage or the post office family link mortgage.
What will the mortgage cost you per month?
The next thing to figure out is exactly what the mortgage you are after will cost you per month. To do this you will input your mortgage deposit, term, and mortgage amount into a mortgage calculator. If the monthly mortgage repayment is less than 80% of your disposable income then great, things are looking good!
But this isn't everything, you also have to consider your stamp duty costs and the average costs of other mortgage associated fees which will pop up somewhere in your mortgage application process.
The table below gives you an indication of what your stamp duty costs will look like.
Stamp duty Table for properties under £500,000 with qualifying first time buyers
|If property price is below £500,000 and buyer is classified as a first-time buyer||Stamp duty rate|
|£300,001 - £500,000||5%|
Stamp duty cost for ordinary buyers with no relief
|Purchase price||Stamp duty rate on first property if buyer isn't classified as first-time buyer||Stamp duty rate for additinal properties|
|Up to £125,000||0%||3%(2)|
Rate applies to that portion of the property price(2) properties up to £40,000 are exempt from stamp duty properties between £40,000 &£125,000 will be charged stamp duty on the full purchase price
Other costs involved with getting a mortgage
|solicitor search fee||£150-£350||Upfront|
|Conveyancer fee||£700- £1000||Usually paid 50% upfront and 50% on completion|
|Lender arrangement fee||£1000 - £1500||Paid upfront or added to loan|
How long does a mortgage application take to be approved?
A mortgage lender may take between 3 days to 2 weeks to approve a mortgage application and offer you a mortgage.
A mortgage application being approved does not mean that you are guaranteed to get a mortgage. The mortgage lender may still withdraw their mortgage offer.
What happens when a mortgage application is submitted?
Once a mortgage application is submitted then you will begin to move towards the middle section of the mortgage application process.
By this point, the mortgage lender will consider your application and then make a decision on if to offer you a mortgage or not.
If the mortgage lender offers you a mortgage then great. You can then go on to carry out your property survey and continue the conveyancing process with your conveyancer.
If this happens to you then don't be too alarmed as it wouldn't be the first time someone had gone far in the mortgage application process only to be denied a mortgage towards the very last steps.
Your mortgage broker will be able to analyse why you may have been declined a mortgage and look at what options you have going forward.
How quickly can I get a mortgage?
The whole mortgage application process could take from as little as 7 days to as much as 6 weeks or even more. How long the mortgage application process will take will depend on the mortgage lender, the home seller, your conveyancer and your mortgage broker.