If you want to take out a mortgage in order to buy a property, the key to success is preparing early. We strongly advise getting your research done, your finances in order and gathering the required documentation ahead of time, which will make the whole process a lot less stressful and give you a better chance of your mortgage loan being approved.
It’s easy to be forgiven if you don’t know where to start with your mortgage application, which is why we’ve prepared this easy to follow guide so you know what you need to do and when in advance of your mortgage application.
The first step is to establish the size of your deposit.
The minimum deposit you must have in order to apply for a mortgage is 5%. With a 5% deposit, you will be applying for a loan to cover 95% of the purchase price of the property – this is referred to as 95% Loan To Value.
Each time your Loan To Value goes down by 5%, you will move into a new interest rate band and unlock a lower rate of interest. Ideally, you will want to save as much of a deposit as possible to take you into the next Loan To Value band available.
If you are close to moving into the next Loan To Value band then it is probably worth saving up a little more money or negotiating a slightly cheaper price on the property you want to buy.
For example, by moving from 90% to 89.9% Loan To Value, you will likely save thousands of pounds in interest repayments over the next few years.
The remainder of the loan is still subject to your affordability and the lender will need to be satisfied you are able to repay the remaining value of the property.
Help To Buy
If you are interested in purchasing a brand new home, it’s worth a mention here about the Government help-to-buy incentive – with a 95% Loan To Value mortgage, you could increase your purchasing potential by using the assistance of a Help to Buy loan, using a little as just a 5% deposit.
This is the term for when a family member is in a position to contribute to your deposit.
Both your lender and solicitor will want to be able to trace the source of the deposit. Your solicitor has a legal obligation to complete money laundering checks.
Your lender will require a letter signed by the person gifting the deposit confirming they are gifting the money and they will not hold a financial stake in the property you are purchasing.
Gifted monies can either be transferred directly into your bank account or sent directly to your solicitor when the time comes.
Our best advice is to inform your mortgage broker of your intent to use gifted funds for your deposit so they can advise the best course of action.
The first and most important thing you need to do when you are thinking of applying for a mortgage, is to make sure you have enough money saved for all the additional costs associated with moving home. Your lender will be keen to see that extra money is in place to pay for the other associated costs, such as:
Stamp Duty Land Tax (SDLT) is paid in the same way as income tax thresholds i.e. SDLT is paid on increasing portions of the property price above £125,000 when you buy residential property as follows:
- Up to £125,000 Zero
- The next £125,000 (the portion from £125,001 to £250,000) 2%
- The next £675,000 (the portion from £250,001 to £925,000) 5%
- The next £575,000 (the portion from £925,001 to £1.5 million) 10%
- The remaining amount (the portion above £1.5 million) 12%
There are exceptions to this, for example First Time Buyers pay zero SDLT on the first £300,000 of the purchase price.
You will need to pay for the Search Fees and the Land Registration Fee as well as conveyancing costs. Investigate which conveyancing solicitor you want to use ahead of time and find out the costs upfront so you know which solicitor you want to instruct by the time you apply for the mortgage.
Optional, but knowing the exact condition of your purchase could save you money long term.
These should be investigated early and can be affected by location and time of move.
Estate Agent Fees
These are applicable only to those selling a property as well as applying for a mortgage for their onward purchase. Estate Agent Fees are typically paid upon completion as a proportion of the sale price.
DOCUMENTS REQUIRED TO APPLY FOR A MORTGAGE
Collate all the necessary documentation as early as possible. This will help your mortgage broker to provide you with an accurate picture of the mortgage options available to you:
- 3 Years of Address History
- 3 Years of SA302 / Tax Calculations
- 3 Months of Payslips
- 3 Months of Bank Statements
- Full details of any Credit Cards or Personal Loans in your name