What Do I Need to Apply for a Mortgage?
Applying for a mortgage can be daunting and you may feel overwhelmed by the amount of information requested. Worse still, you may struggle to gather the documentation and information requested by the lender.
The good news is you can make the mortgage application process more straightforward by preparing for your mortgage application in advance. By doing so, you and your broker should be able to promptly reply to requests made by the lender. This should significantly improve the turnaround time from application to offer.
Let’s discover what you need to apply for a mortgage.
What is Equity Release?
Surprisingly, many people approach lenders without knowing the type of mortgage they require. There are two main types of mortgage:
- Residential Mortgages – for buying or remortgaging your home/main residence.
- Buy to Let Mortgages – for buying or remortgaging property you are looking to rent out for profit.
There is also a subset of mortgages available in the UK such as those for second homes, construction/new build mortgages, commercial mortgages, and equity release.
The mortgage you need will be dependent on your goals and if you are unsure about the type of mortgage you require, a mortgage broker like Boon Brokers will be able to advise you.
How to Prepare for Your Mortgage Application
If you are anticipating getting a mortgage in the near future, it is best to contact a mortgage broker at least 3 months prior to the likely application date.
During your initial phone consultation, you should highlight what you are trying to achieve, and your broker will then identify the mortgage you need and the documentation you require.
Armed with this checklist, you can collate all the information prior to applying for your mortgage and supply it to your mortgage broker. This saves you from the stress of tracking down documentation in bits and pieces as it is requested by a lender.
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How Much Money Do I Need for a Mortgage
There are different fees applicable for a mortgage application. The three main costs of applying for a mortgage are:
- Mortgage Booking Fee – charged by the lender and can in most cases be added to the mortgage
- Deposit – this is the amount of money you put towards your property purchase and is a minimum of 5% of the purchase price
- Mortgage Broker Fee – In most cases, mortgage brokers charge an advice fee. Boon Brokers does not charge a broker fee and provide mortgage advice free of charge
To reduce costs, it is always best to seek a reputable, fee-free, whole of market mortgage broker like Boon Brokers. Broker fees can be high and there are mortgage brokers who charge more than £2000 per completion.
How Do Lenders Check I Can Afford a Mortgage?
A lender checks you can afford a mortgage by doing a mortgage affordability calculation. On a basic level, this calculation typically allows you to borrow a certain multiple of your annual salary.
For example, most lenders allow you to borrow up to 4.5 times your annual salary. If you earn £60,000 a year this would result in a maximum mortgage amount of £270,000. For a rough idea of your mortgage affordability, use our Mortgage Calculator.
There are lenders with tighter lending criteria and even a few who will allow you to borrow up to 5 times your annual salary. Typically, those lenders will insist that your income is above a certain threshold – such as £100,000 gross per annum.
In addition to salary, there are many other factors that lenders consider when assessing your maximum mortgage sum. These factors include your financial commitments, committed expenditure, term period required and adverse credit on your credit file.
Your mortgage broker will match you to a lender that meets your loan requirements with their affordability calculation.
Documents Required for a Mortgage
You will need to provide your lender with several documents. These documents will be evidence of the information you provide a lender when you apply for a mortgage.
Proof of ID
When you take a financial product in the U.K., a financial institution is required by law to verify your identity. This is to prevent fraud and money laundering and the process is known as Know Your Customer (KYC).
Lenders will typically ask for two forms of ID; an official photo ID such as a passport or driving license and then proof of address, such as a recent bill or bank statement sent to your address.
Sometimes, lenders request that this information is sent to them, but most lenders use identity-checking apps that you can download on your phone and securely scan and send your ID.
Proof of Income
The income you declare on a mortgage application will need to be corroborated. You are unable to self-certify your income as this is now deemed too high risk after the 2008 mortgage crisis.
If you are employed, you will provide your latest payslips or at least a signed employment contract. If you are self-employed, you will provide your latest tax calculations and corresponding tax year overview documents (typically the latest two years). If you are a company director you may be asked for a combination of the above alongside your company accounts. All lenders are likely to request bank statements to evidence your income and declared expenses. Proof of income for a mortgage may vary from lender to lender. However, smaller building societies are more likely to scrutinise your day-to-day expenditure compared to larger banks. Larger mortgage lenders tend to use averages from Office for National Statistics data to assume your expenses, unless your expenses far exceed these averages.
Proof of Expenses
In some cases, you may also need to supply details of expenditure, although this is not always required. Lenders are normally concerned about certain expenses such as other mortgages, second charge loans or child and spousal maintenance.
Your mortgage broker will advise whether you need to supply expenses documentation and what will be required.
What Our Clients Have To Say
Finally, you will need to pass a credit check as part of the mortgage application. By discussing your financial situation in advance of submitting a mortgage application, a broker will be able to advise how you can improve your credit report and, thus, improve your chances of passing the lender’s credit check.
Alternatively, you can do this work in advance yourself by checking your credit report and following the recommendations from credit reference agencies.
Some recommendations made by credit reference agencies will not be appropriate if you are seeking a mortgage. For example, you may be advised to borrow more money or take a credit card to improve your credit score (by building up evidence of your ability to repay debt) which will cause problems if you are applying for a mortgage shortly.
Speak with your mortgage broker before signing any additional financial commitments, as this may impact your affordability.
Speak to a Mortgage Broker
Boon Brokers is a whole of market mortgage, insurance and equity release brokerage. Boon Brokers provides fee-free mortgage advice and arrangements.
Contact Boon Brokers to book your initial mortgage consultation and prepare for your mortgage application today.