How to apply for a mortgage

6 steps to apply for a mortgage

Whether you're buying for the first time or moving home, navigating the mortgage application process is just one of the steps you'll need to take before you can pick up the keys to your new place. Understanding what's involved and preparing everything you need in advance can make applying for a mortgage much more straightforward.

1. Save your deposit

The very first thing you need to do is save up a house deposit. Most lenders will ask for you to put down at least 5% of the cost of the property you want to buy. But typically speaking, the bigger the deposit you put down, the better access you'll have to rates and deals.

If you're struggling to save the deposit you need, you may find homeownership schemes helpful. For example:

• Shared ownership allows you to buy up to 75% of a property and pay rent on the remaining share

• First Homes scheme offers first-time buyers and key workers an opportunity to purchase a new-build home for up to 50% less than their market value

• Right to buy or Right to acquire gives council or housing association tenants chance to buy their homes for less than the market value

• Lifetime ISA allows you to save up to £4,000 every tax year (if eligible) and receive a 25% bonus from the government (up to £1,000 per year)

"Your deposit isn't the only thing you should be saving for. You'll likely have legal fees, product fees, survey costs, stamp duty (if applicable) and moving costs to pay when you buy a home. It's a good idea to budget for all of these expenses and make sure you have enough saved up to cover them alongside your deposit." - Jason McDonald, Mortgage Expert

2. Check how much you can afford

It's worth being aware of what size of mortgage you can afford so you can budget accordingly. Lenders will typically lend you around 4.5 times your annual income, but they also take other factors like your spending habits and credit history into account.

Our mortgage calculator can give you an idea of what you might be able to borrow based on your income and the amount of deposit you currently have saved.

It's also a good idea to check your credit report as lenders will review this to assess what kind of borrower you're likely to be. If you have a good track record of managing money and repaying what you owe on time, you'll likely be seen as less of a risk to lenders. Therefore, you may be more likely to be accepted for a mortgage. You should be able to get a copy of your credit report from each of the main credit reference agencies (Equifax, Experian and TransUnion) - if you spot any errors or inaccuracies, make sure you get them corrected.

While bad credit doesn't necessarily mean you won't be accepted for a mortgage, it can limit the deals available to you. If you're concerned your credit history might be holding you back, there are steps you can take to improve your credit score.

3. Get a mortgage agreement in principle (AIP)

Also known as a mortgage in principle or decision in principle, this document outlines what a bank or building society might be willing to lend you if you applied for a mortgage with them. A mortgage broker or lender can normally provide you with one once you've given them some details.

Getting a mortgage in principle doesn't guarantee your application will be accepted, but it does make it easier to know what your budget is for a home. Estate agents may also ask to see this document to check you are serious about buying a property.

4. Find out your mortgage options

Once you've found your dream property and put in an offer, it's time to start looking for a mortgage. There are thousands of different mortgage deals out there from a wide range of lenders and comparing options yourself can be challenging.

You may find it useful to speak to a qualified mortgage broker. They'll compare mortgage deals on your behalf and recommend the most suitable options for your circumstances. Plus, they'll be on hand to answer any questions and help to explain any mortgage terms you're not sure of.

5. Gather your mortgage application documents

As part of your formal mortgage application, your broker or lender will require a number of documents from you. Here's what you need:

• Proof of ID - passport, photo driving licence, national identity card or bio-metric residence card

• Proof of address - bank statement, credit card bill, utility bill, or mortgage statement dated within the last three months, or council tax bill, HMRC coding letter (the one showing your tax code), benefit entitlement letter, state pension letter, or tenancy agreement dated within the last 12 months

• Proof of income (employed) - three to 12 months worth of payslips and bank statements, as the length needed can vary by lender. Some lenders will be willing to consider a letter from a manager or HR department if you don’t receive payslips, however, this is at their discretion and it’s much better to have payslips if possible

• Proof of income (self-employed) - 12 to 36 months worth of your full accounts (signed-off by a certified accountant) and end of year tax calculations (used to be known as SA302 forms) for the same duration. A tax year overview for the most recent year can also be helpful. You will also likely need to provide bank statements covering any personal and business accounts

• Proof of deposit - this will depend on how you obtained your deposit, but may include savings account or investment statements, proof of sale for any items that may have been sold towards your deposit - such as a car or property, a certificate of inheritance or a signed letter from the provider of a gifted deposit

Some lenders and brokers allow you to upload your documents online which can save a lot of time when it comes to the mortgage application process. Make sure you download and upload them in the correct format to save any unnecessary delays.

6. Apply for your mortgage

While you can apply for a mortgage yourself, it's often advisable to use a mortgage broker. They can help to prepare and submit your application on your behalf to maximise your chance of success. Plus, they'll liaise with third parties like your lender or solicitor to help the process move along more smoothly.

Once you've submitted a formal mortgage application, your lender will carry out a full credit and affordability check and arrange a property valuation. If they're happy with everything, you'll be issued with a formal mortgage offer. This is usually valid for six months - which should hopefully give you and your solicitor plenty of time to complete on your property.

How much money do I need for a mortgage?

The largest sum of money you’ll need to find is the deposit, which will usually be at least 5% of the cost of the property you’re looking to buy. If you can afford to save 10-20% towards your first home, however, this can make a big difference to the lender’s decision.

For example, to buy a house that costs £250,000 you would need:

• £12,500 for a 5% deposit

• £25,000 for a 10% deposit 

• £37,500 for a 15% deposit

• £50,000 for a 20% deposit

You will also need to have enough income to cover the monthly mortgage repayments. Most lenders calculate your loan size based on four to four and a half times your annual income. If you apply jointly, your income will be assessed slightly differently and this will vary by lender.

Typically, lenders either use your combined income multiplied by a slightly lower number, perhaps three and a half, or use four and a half times the highest earner’s income plus the lowest earner’s income. 

For example, to borrow £200,000:

• An individual would need to have an income of between £44,444 and £50,000

• A couple would need to have a joint income of around £57,143  - although this will depend on how they calculate your combined income 

Of course, in reality, your income will usually need to be higher than this, as lenders will need to take your other outgoings into consideration when calculating how much you can afford to repay. Some lenders also have a minimum income requirement for any mortgage, regardless of loan size, which is generally £20,000-£25,000.

It could be worthwhile speaking to a qualified mortgage broker to help you work out your options.