How to Apply for a Mortgage
Mortgages have been hitting the headlines for all the wrong reasons lately as interest rates rise.
However, now could be the perfect time to buy a brand-new home and invest in your future rather than spending money on renting. It really depends on your individual circumstances.
One of the biggest queries first time buyers have when looking to buy their own home is ‘How do I apply for a mortgage?’
As we’ve helped a fair few people in our time through the house buying process, and work with IFAs and solicitors across the country, we’ve got some great knowledge to share with you that may just make it that little bit easier.
Work out your budget
Even if you think you can afford a mortgage, it’s a good idea to sit down and take a close look at your finances. If you’re an excel expert, create a spreadsheet, or if not, notes on your phone, or even a pen and paper will do. Now list your incomings, mainly your wages (your flat rate, don’t include any bonuses or anything that’s not guaranteed each month), second jobs, freelancing or benefits, and then list your outgoings. This will invariably be a longer list, but make sure to include absolutely everything you spend money on. From car loans and phone contracts, down to how many times you grab a take-out coffee and everything in between.
Now you have a gauge on how much you spend, the next stage might be to make some lifestyle changes to maximise your savings potential for your first home.
Next is to remember that there are other costs that come with owning a home that you may not pay currently if you are living with parents etc. such as home insurance, broadband, TV subscriptions, utility bills and food shopping. It’s always handy to be aware of how much these could potentially cost on a monthly basis.
Once the groundwork is done, now is a great time to use an online mortgage calculator. This can give you a really good idea of what is possible on your salary, or your joint salaries if you are purchasing with someone else.
How do mortgage lenders check I can afford a mortgage?
Your preferred lender will check your affordability by considering all your salary and other earnings alongside household bills, outgoings, debts and financial commitment to ensure you have enough to cover the monthly mortgage. They also look at variables such as checking if you could afford the mortgage should rates go up or if you are perhaps nearing retirement age or starting a family age. They’ll also do a credit check to see how much of a risk to them you might be.
How do I choose a mortgage provider?
There are so many mortgages out there, and each mortgage provider will have a range of products for you to choose from which can differ in length of term (that’s how many years you take your mortgage over) to interest rates, which can be fixed if you want to pay the same amount each month. There is little wonder that it can initially seem daunting. One good starting point is to explore options with your banking provider, although be aware they will only tell you what products they have, so it can be a limited choice.
Alternatively, and probably the most comprehensive way to explore all your options, is to use an Independent Financial adviser (IFA). Ask around amongst friends and family; word of mouth recommendation is a good way to find a reputable one, or you can ask one of our Development Sales Managers and they can recommend some to you.
An IFA will be able to look at your own circumstances, search the entire spectrum of providers (a bit like a comparison website) and provide details of all the products that are available to suit your requirements and budget. And, importantly explain the small print, which let’s face it, can be quite confusing!
Applying for a mortgage
Once you have chosen a mortgage product you will need to start the application process. If you do have an IFA, they’ll be able to submit this on your behalf. As part of the application process there are some things that you will need to provide:
*ID documents to verify you are who you say you are
* Six months of wage slips to prove that you have a steady and reliable income
* And up to six months of bank statements to show how you manage your finances
Once the provider has completed their assessment of your eligibility, they may request additional information or agree to lend you the funds. They will then provide you with a Decision in Principle (DIP) which means that you have an offer for that mortgage subject to approval of the valuation of the property that you are looking to buy. Or, you may have an Agreement in Principle (AIP) which is applicable if you don’t know which property you are going to buy but needed to know how much of a mortgage you could have. Each lender is different, but AIP/DIPs typically tend to last six months.
Should you be turned down for a mortgage it is always worth trying to find out why. Be wary of applying for too many mortgages close together as this can affect your credit score which won’t help matters in the long run.
Found your dream home?
You now know how much you are able to lend thanks to the AIP/DIP, and you may have already found your dream home, so what’s next?
If you’re buying a new property, the housebuilder will let you reserve your home based on your AIP/DIP. Now you need to formally apply for the mortgage. Contact your mortgage provider or IFA and they will start the formal application process.
This involves the mortgage provider valuing the home that you are buying to ensure that it is at the correct market value. This can even be done off plan if the home you’re buying is not yet built.
Once this has been completed you will receive an offer, they again typically last for six months. The time that it takes for you to move into your home can vary as there are so many different variables, you may be in a chain or you may be waiting for the property to be built.
As the purchase process progresses, and your competition date is set, your solicitor will request your mortgage funds from your lender. This is usually around a week before you are due to move in. On the day you complete the purchase of your new home, your solicitor will send the funds to the vendors/developer’s solicitor and once all is received, they will confirm you have completed the purchase.
So, whilst applying for a mortgage for the first time may seem a little daunting, you can be assured that there is lots of professional help out there to support you every step of the way.
And, if you are buying a brand-new Miller Home, our experienced Development Sales Managers, will be there to offer help and advice to make your house buying journey a great experience.