How do I get a mortgage?
Do you want to buy a property in the UK? You probably will need to get a mortgage. We have a step by step process to make things easier for you! Latest Deals is here to help you understand how to get a mortgage.
Step 1: Know how much you can borrow
First of all, you need to know how much you can borrow.
To make it easier, roughly, you can multiply your annual income before taxes by 4.5 to see how much you could potentially borrow if you are applying for a residential mortgage.
For example, if you make £25,000 per year, you could potentially borrow £112,500.
This is only an estimation and the final amount depends on your circumstances.
A general rule of thumb is it may be between 3 to 4.5 times your income.
IMPORTANT NOTE: If you are getting a mortgage with someone else, both annual incomes are considered, and the amount you can borrow increases.
For example, if you earn £25,000 per year and your partner also earns £25,000 per year, that is a total of £50,000. You multiply £50,000 by 4.5 which equals £225,000.
Step 2: Save for a deposit
To make it easier to get a mortgage, you will need a deposit.
The more you save to buy a property, the easier it will be to get a mortgage.
Most residential mortgages require a minimum of a 10% deposit. The terms of a mortgage tend to improve with the size of the deposit.
Example: If you want to buy a house that is £200,000, a 10% deposit would be £20,000.
Read our guide about mortgage deposits here.
Step 3: Speak with a mortgage broker/adviser
This is an optional step, but it's highly recommended because a mortgage broker/adviser will help you get the best deal possible.
Often, a mortgage broker can offer you free advice. They usually charge fees only after you have got the mortgage.
A mortgage broker works on your behalf to search for the best mortgage available to you.
You will need to give the mortgage broker lots of personal information, including your financial details, so make sure you use a reputable company.
IMPORTANT NOTE: Depending on your case, it's highly recommended to talk to a mortgage broker/adviser as they will be able to help you, making the whole process easier for you.
Step 4: Choose the best mortgage deal for you
To choose the best mortgage deal for you, you first need to decide what is the best type of mortgage for you. Read our guide about types of mortgages.
Once you find out the best type of mortgage according to your circumstances, you (or your mortgage broker) will need to find a bank or a building society that offers this type of mortgage.
To use these sites, you will need to provide some basic information such as: if you want to buy a property or if you wish to remortgage, if you're going to live in the property or if you're going to let it out, if the mortgage is to buy your first property or not, if you want an interest-only or a repayment mortgage, if you want a fixed or a variable interest rate, how long you want your mortgage term to be (up to 40 years maximum) and others.
Note: If you use a mortgage broker they will do this step for you. Also, mortgage brokers may have access to mortgage deals not available on these sites. Keep in mind that each site or comparison tool may not be showing you a complete range of mortgage offers.
Step 5: Apply for an Agreement in Principle (AIP)
When you find the best mortgage deal for you, you can apply for a mortgage in principle, the popular name for an Agreement in Principle.
An Agreement in Principle is kind of a mortgage "test drive" where you get an idea of what mortgage deal you could potentially get. It is a document (often a PDF) that says you should be able to get a mortgage for a certain amount.
This process involves softer credit checks, and before getting an "official" mortgage.
An agreement in principle is not guaranteed. You should consider it to be an approximation, and be prepared that you may not be able to get the exact amount.
This will also help you understand your financial position and if you can afford to buy a property or not.
An Agreement in Principle, or Mortgage in Principle, is useful to have as a first-time-buyer when booking visits to properties so that estate agents take you seriously.
An Agreement in Principle, or Mortgage in Principle, should not cost you money.
If you don't get approved at this stage, you will know what you need to work on to get approved next time.
When applying for a mortgage in principle, the lender will take into consideration how much deposit you have, how much money you want to borrow, what your employment status is, what your credit score is, how much you can afford to pay considering your monthly outgoings and commitments, if you already have another loan or debts, and what type of property you want to buy.
IMPORTANT NOTE: In this case, you can apply for more than one lender at the same time, as an Agreement in Principle won't affect your credit score.
An AIP is a statement that will say that, in principle, the financial institution is willing to give you a mortgage deal.
Step 6: Look for a property
Now that you know how much you can borrow, you have saved for a mortgage deposit, and you were approved for a mortgage agreement in principle, you can start looking for a property.
This is the fun part!
Step 7: Apply for a mortgage
After you have found a property, agreed a price with the seller, it’s time to apply for your mortgage.
If using a mortgage broker, you should contact them and tell them the information about the property you want to buy and the agreed price.
Your mortgage broker will then compare mortgages available on the market (it changes every day) and give you the best options. Or, you might do this yourself.
You need to choose which mortgage you would like to apply for.
IMPORTANT NOTE: Buying a property is likely to be the most expensive purchase you will ever make in your life. So do not rush it. If there is anything you do not understand, speak to a professional mortgage advisor.
Mortgage brokers are regulated by the Financial Conduct Authority and it is within their role to ensure you understand exactly what you are getting. Don’t be afraid to ask silly questions!
The lender of your choice will take a deeper look at your finances and run a hard credit check to see if you qualify or not for the mortgage.
During this process, the lender may need to do a home valuation check to see if the property you want to buy is worth how much you are paying and asking to borrow. They may send someone to look at the property or they may have some online tools that can do it without a visit. This may be charged as one of the mortgage fees.
There are many things taken into account for your eligibility of the mortgage:
The value of the property, how much deposit, your age, the length of the mortgage term, your credit score, your income, your monthly outgoings, if you have any existing debts or loans, if you are applying solely or jointly and others.
You will need to provide documentation, including proof of income, bank statements and all your financial commitments.
IMPORTANT NOTE: It's not recommended to apply for a mortgage with more than one bank or building society because if you are denied, your credit score will be affected at this point.
Step 8: Receive your mortgage offer
If your documentation and the valuation of the property you want to buy are approved, you will receive a mortgage offer. This can take several months.
This offer will show that the lender is happy to lend you the money and all the terms and conditions of your mortgage.
IMPORTANT NOTE: A mortgage offer usually lasts from three to six months, so you need to make sure you are ready to buy a property before applying for a mortgage. Otherwise, you might need to apply for a mortgage again if the purchase doesn't happen within these three to six months.
Step 9: Complete the mortgage deal
At this point, you will need a conveyancer, which is a licensed professional specialised in property ownership transfers.
This professional will assist you with the buying process, providing you with the documentation you need to sign to close the deal.
IMPORTANT NOTE: You will need to find a conveyancer yourself, or you can use the one offered by the bank or the building society you are getting your mortgage from.
Latest Deals also has a step by step guide on how to buy a property in the UK.