There are 7 simple steps to a successful mortgage application: pre-application, applying for a decision in principle and making an offer, application, conveyancing, property survey, offer and exchange of contracts to completion.
Mortgage Application Guide
Applying for a mortgage doesn’t need to be daunting. Most people just don’t know what to expect. In this guide, we’ll take you through the mortgage application process, explain the key stages and help you understand your options.
What's the mortgage application process?
Before you apply for a mortgage, you need to make sure you’re in a good financial position. Gather credit reports from 3 external bodies and check that there’s no information which could deter a lender. If any information in your credit report is incorrect, contact the agency so they can amend the error as soon as possible. Lenders may have issues if you’re not on the electoral roll, have previously missed payments on credit commitments or have defaults or county court judgments recorded against you.
You also need to assess your financial situation. How’s your credit score? Is this the right time to apply for a mortgage? A bad credit score can be severely detrimental to the deals available to you, so consider whether you need to improve your rating before starting your mortgage application.
There’s a lot of jargon to get your head around when you first start your research, especially if you’re a first-time buyer. Some of the terms you want to look out for include:
- Mortgage type, e.g. fixed, variable or tracker
The interest rate on your mortgage. Your interest rate won’t change if it’s a fixed-rate, whereas the interest on a variable rate mortgage may move up and down. Tracker rate mortgages are a type of variable rate and are usually directly linked to the Bank of England base rate; they can go up as well as down.
- Initial rate
The rate of interest you’ll pay at the start of your mortgage before any introductory rate ends.
- Monthly repayments
The amount you must pay each month towards your mortgage once your contract starts based on the product interest rate, the method of repayment and the overall mortgage term.
- Mortgage duration
The duration of your mortgage refers to the length of the time that the introductory rate is valid. It may be that you’ve chosen a mortgage rate that’s fixed for an initial period.
- Scheme fees
The money you’ll pay to arrange the mortgage. Scheme fees cover costs such as arrangement, valuation and property surveying. Mortgage fees will typically cost you anywhere from £0 up to £2,000, depending on the chosen product. You’ll also have to pay Stamp Duty on anything above £125,000, or over £300,000 for first-time buyers.
Applying for a Decision in Principle will give you an indication of how much you may be able to borrow. This is not the actual full application but the first part where we tell a lender all about you. The feedback is called a Decision in Principle or Agreement in Principle and is subject to the full application and underwriting, including a satisfactory valuation. It’s best to do this before you start house hunting, so you know you’re looking at properties you can afford.
This stage of the home-buying process depends on how long it takes you to find a home you can afford that ticks all your boxes – or at least most of them. It’s important to take your time and research your chosen area, to ensure you make the right choice.
Once you’ve found a property, the next step in England, Northern Ireland and Wales is to make an offer, typically through an estate agent. The estate agent should confirm when you’ll hear back from them.
In Scotland, you must instruct a solicitor who will help you prepare a bid for the property. As you can become legally committed to buying the property when your bid is accepted, you need to ensure that you have a Decision in Principle and are ready to proceed with a mortgage application.
Once you’ve had an offer accepted on a property, you can apply to turn the Decision in Principle into a potential mortgage offer.
In most cases, it typically takes up to a couple of weeks – from completing an application to receiving a formal mortgage offer. However, in some circumstances, it could take longer.
After we’ve submitted your mortgage application, the lender will underwrite your application further. The process involves detailed checks of your finances, and the lender will conduct its own mortgage valuation on the property you want to buy; this valuation is for the benefit of the lender, not the buyer.
Every now and then a property requires repairs, or the price being asked for is too high. In these circumstances, it’s sometimes possible to renegotiate with the vendor. Generally, lenders look at the size and condition compared to similar properties that were sold recently in the local area, but the valuation process will differ between lenders.
You pay for the valuation when we submit the full application to the lender – not when securing a DIP. Your mortgage adviser will explain this to you beforehand, so you won’t be shocked by any surprise fees.
During the application process you’ll need lots of documents to support your formal mortgage application, like payslips, bank statements, accounts, etc. The lender may also require additional documents throughout the process. There can be a lot of back and forth at this stage, which is why we liaise with the lender on your behalf. We’ll also deliver regular updates on the progress of your application so you’re always aware of how it’s going.
Lenders usually perform what is known as a “stress test” or affordability assessment. Essentially, they look at your net disposable income, i.e. your net monthly pay, to see if you could still afford the monthly payments should interest rates rise – even if you’re on a fixed rate. This is in place to protect both you and the lender, should the Bank of England increase interest rates significantly.
Timescale: 6-12 weeks
You’ll need to appoint a solicitor or licensed conveyancer to handle the legal aspects of the property purchase.
If there are no issues or hold-ups, the conveyancing process can take around 6 weeks. But it could take a few months, particularly if you end up in a ‘chain’ transaction.
A property chain is when there are a number of transactions that need to happen at the same time. For example, if you’re buying a home from someone, and they are buying another place to move into – it can create a chain of buyers and sellers that need to move at the same time.
Your solicitor or licensed conveyancer will conduct searches with the local council and other authorities to check whether there are any concerns that might affect the property’s value, or your enjoyment of it.
Timescale: 2-3 weeks
It’s a good idea to have your own survey of the property carried out to flag any potential problems. This is different from a mortgage valuation, which is carried out for the lender’s use only. See our House Survey Guide for more information.
The survey itself should only take a few hours. Most surveyors will then produce a report within a couple of weeks before sending it to you.
There are several types of surveys offering different levels of property inspection:
-
RICS Condition Report – the most basic type of survey
-
RICS HomeBuyer Report – a more detailed inspection of the inside and outside of the property
-
RICS Building Survey – the most comprehensive type of survey
In Scotland, sellers must also provide a Home Report, containing an energy performance certificate, a survey and a property questionnaire. Once you or your solicitor has checked this, you can decide whether to make a bid.
If your bid is accepted, contract details will be worked out. Your solicitor or licensed conveyancer will then exchange letters, known as ‘conclusion of missives’ with the seller’s solicitor. Once this process is completed, the deal is legally binding. In England, Wales and Northern Ireland, this isn’t the case until contracts are exchanged.
Once you’ve passed the initial affordability checks and the lender has valued the property, your lender will send out a legally binding mortgage offer. If you haven’t chosen for any product/arrangement fee to be added to the mortgage or, if you haven’t paid this on application already, you’ll be required to pay it now. Some lenders may just deduct product/arrangement fees from the mortgage money they send to your solicitor. Our mortgage advisors will go through all of this with you well in advance.
Sometimes, you’re given at least 7 days to decide whether you want to accept the mortgage offer, but many lenders skip this step. They assume that, if you use that mortgage to complete on the purchase, then you’ve accepted their mortgage offer.
You can cancel your mortgage application at any point up until you exchange contracts, at which time you’re legally bound to following through to the last stage – completion. Be aware you may lose money if you cancel; the amount will depend on how far through the application process you are, e.g. if you’ve paid a valuation fee and the surveyor has already visited the property, or you’ve already paid some legal fees before deciding to stop the process.
Timescale: 1-4 weeks
Once you have your mortgage offer and your solicitor or licensed conveyancer is happy with the results of searches, their enquiries of the seller and the legal title to the property, you’re ready to sign and exchange contracts (although the process is a little different in Scotland).
If you’re in a property chain, the other buyers and sellers have to be ready too. If not, there may be a delay.
Your solicitor or licensed conveyancer will exchange contracts with the seller’s conveyancer, and you’ll hand over your deposit for the house. The agreement is now legally binding, and you may need Buildings & Contents Cover in place at this point.
As part of exchanging contracts, a completion date will be agreed. The time it takes to complete is agreed between you and the seller. Completion dates are often set 2 weeks after exchange, but it could be as little as 1 day. There may, however, be hold-ups if a chain is involved.
On the date of completion, you should be able to pick up the keys to your new home!
How long does a mortgage application take?
The timeframe for a mortgage application varies from person to person. How long it takes to get a mortgage depends on your unique situation as well as the speed of the lender. Your mortgage could easily be ready in 2 weeks, but this isn’t always possible.
You may have a complex situation which requires a lot of back and forth with the lender, or there may be issues with your mortgage application, such as those raised on a valuation. A good reference point is about 4 weeks. Your adviser will give you a more accurate idea of the timeline you’re looking at once they start the process.
When you ask The Residential Mortgage Hub for independent mortgage advice, we take all the hassle and stress out of choosing and arranging your mortgage. We not only source the best mortgage for your situation from over 90 lenders, but our helpful mortgage advice team manages the entire process for you. From application to successful completion.
This means that we can retain more control over the application process and keep you updated at every step. Your solicitor will manage the legal aspects of either a property purchase or a remortgage. They’ll be heavily involved once the mortgage offer is released and the money starts being prepared and made ready for completion – we’ll still be here to assist you and answer any questions you may have.
What's a decision in principle (DIP)?
Also known as a ‘mortgage in principle’ or Agreement in Principle (AIP), the DIP is an agreement from a mortgage lender that they’ll lend you a certain amount of money, on the condition that the information given to them is accurate.
We give them information on your address history, your earnings and your credit commitments. This enables them to do a quick credit search and to credit score your potential application. They also have an underwriter vet this initial application. Then they’ll either accept or decline based on your information and their findings.
A DIP is not something to enter into lightly. The lender will carry out credit checks that leave either a soft or hard footprint. A soft footprint won’t affect your credit score with other lenders, but multiple hard footprints can. This can have a negative impact on the mortgage deals available to you. It’s therefore important to speak to a mortgage adviser who can explain all of this to you in more detail, rather than applying for a DIP yourself.
Mortgage requirements
As mortgages tend not to cover 100% of the purchase price, you’ll need to pay a deposit on the house to cover the difference between the mortgage amount and the purchase price. A lender will want you to pay no less than 5% of the property price up front, but deposits of 10% or more are common. More information about deposits can be found in our Mortgage Deposit Guide.
Your lender needs certain documentation from you to carry out the assessment stage of your mortgage application. They need to verify who you are and whether you can afford to repay your mortgage based on your net earnings and financial commitments. You must therefore provide evidence of your identity, income and finances.
Documents you may need to provide to support your mortgage application are:
- Proof of ID, e.g. a passport or birth certificate
- Proof of address, e.g. utility bills
- Proof of earnings, e.g. payslips
- Proof of income and out goings, e.g. bank statements
Your lender needs to verify that you’ll always be able to make your mortgage payment, e.g. you take out a variable interest rate mortgage and rates increase. Can you afford the new repayments?
The lender will run financial checks and likely review the following areas:
- Employment
- Salary and other income
- Expenses
- Outstanding credit commitments, loans and direct debits
- Any debts or defaults
- Any other financial commitments, such as childcare costs or school fees
Important information
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount will depend upon your circumstances.
The fee is up to 1% but a typical fee is £598.
