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How does a mortgage application work?

A mortgage application is simply an application for credit, you'll need to pass credit and affordability checks with a lender to get the deal you want
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How does a mortgage application work?
How does a mortgage application work?

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Filling out a mortgage application can seem like a complicated process, but when you separate it into two different sections, it can feel a lot simpler.

Depending on your financial circumstances, credit rating and your method of finding and agreeing your mortgage, the application process can range from the very simple to the frustratingly complicated.

People with a good credit rating and regular stable income are more likely to find that the application process for a mortgage is smoother, shorter and generally painless.

On the other hand, those with a negative mark on their credit history and who have fluctuating incomes will come up against a few hurdles before they can finally be approved.

However, when looking at the entire mortgage process as two separate parts, the application itself can feel slightly less daunting.

Comparing mortgages online

Even if you decide to use a broker or go direct to your bank, comparing mortgages online should be the starting point in searching for a mortgage.

It's possible to compare most of the mortgage deals on the market online, from a wide variety of lenders and you can usually filter available mortgages depending on their suitability to your circumstances.

Often mortgage comparison websites allow you to either click through and enquire about getting a mortgage in principle, or speak to a broker who can help arrange a mortgage in principle.

Often you will just need a few basic details about yourself and later on, you will likely have to send in copies of your last three bank statements and proof of your income.

Comparing mortgages with a broker

A broker can help make the process simpler by showing you a range of mortgages available on the market.

When speaking to a mortgage broker, find out in your first conversation how much their services will cost. Some mortgage brokers will charge a flat fee, a daily or hourly rate, or a percentage of the mortgage you receive.

However, you can also find a few mortgage brokers who offer their services free of charge, who will take their payment from the mortgage lender.

It is worth remembering that mortgage brokers are regulated by the Financial Conduct Authority and are therefore obliged to give you sound advice that won't put you in financial hardship.

Mortgage brokers can be held liable in the event that your deal does not work out. For example, you might make a significant and unexpected financial loss as a result of bad advice from the broker. In such cases, you may be allowed to receive compensation.

Whether you pay for your mortgage broker or not, the application process here is a fairly simple one, depending on your circumstances.

You will likely only need to give them your last three months of bank statements and any other proof of income and identification. They will run a credit check and see what deals you are likely to be able to get.

If you are self-employed or have a fluctuating income, then this could be more difficult. However, some mortgage brokers specialise in this area and can help find you lenders that specifically deal with the self-employed.

Comparing mortgages with a bank

Going direct to a mortgage lender or speaking to your bank can make the first step of the mortgage process simpler, but you won't get a comparison of the market to check you're getting a good deal.

If you go direct to your current account provider, it is likely that you won't need any additional information to get a mortgage in principle. They will already have your bank statements and information, and will likely know how trustworthy you are.

Ultimately, however, it is important you keep comparing mortgages and determine what is right for you and your financial situation.

Getting an agreement in principle

If you view the mortgage application process as two separate parts, then the agreement in principle is the first step and perhaps the easier part.

A mortgage in principle is an agreement with the lender that, based on your financial situation, they would be, in theory, happy to lend you the agreed amount to help you buy a home.

For the mortgage in principle, you usually only need three months of bank statements, your passport and possibly some additional documents for proof of income. The lender will also run a credit check to make sure you are not a risk.

As stated above, if you are self-employed or have a less common financial situation, then this stage could be harder, and you may get rejected more than once.

On the plus side, once you get past the mortgage in principle phase, then you know you should have less trouble completing the application and being able to take the mortgage to offer.

However, there still can be issues along the way even if you have a mortgage agreement in principle.

Completing the mortgage application and survey

Due to tighter financial regulations following the 2008 crash, all lenders will 'stress test' your application.

This means they will take a look at your income, your potential monthly repayments and your regular day to day spending habits, and see what might happen if, say, you lost your income for a few months, or the Bank of England raised interest rates.

If the lender is confident that your finances can withstand these unexpected, but potential, pressures, then it is likely that they will be happy to fully underwrite your mortgage application.

The final step would be, once you have put in an offer on the property, to get a mortgage valuation survey.

This is not a full survey, but simply one that must be done on behalf of the mortgage lender to assess whether or not the money they are lending you is a worthy investment.

If the property is deemed to be less valuable than the money you asked for, then they might decide to withhold the mortgage offer or downgrade it – forcing you to pull out of the deal, get a worse deal, or put up the rest of the money with your own cash.

Each step of the way in a mortgage application can take anything between a few minutes, a few hours, days or weeks. It mostly depends on your situation and potentially a few external factors, such as the mortgage valuation survey and the lenders' own extra checks.

Compare first time buyer mortgages

Compare a huge range of first time buyer mortgages on our comparison tables