When to apply for a mortgage
Can you apply for a mortgage before finding a house?
What is a mortgage?
One big step towards getting your feet firmly on the housing ladder is to get a mortgage. This is the big, long-term loan from a bank or building society that you’ll need in order to buy your home.
When you get a mortgage, you’ll need to make sure you can afford the repayments each month, if you can’t keep up with the repayments, your home may be repossessed.
The short answer is yes!
You can get what’s known as a mortgage in principal before finding a house, which will also guide you as to how much you can borrow.
It isn’t essential to do so however, and there are a few things you need to understand first, which we run through below.
Finding the right mortgage, and having your application approved, can take some time.
So, when should you apply?
Everyone has their own credit score, and the higher it is the better. It can take a while to improve your score if it’s low. If you don’t know your score you can get it from Experian, one of the main Credit Reference Agencies.
See these tips on how to improve your credit score.
Arranging a mortgage can be time-consuming, but you can start planning for it before you even start house-hunting: work out what you can afford to spend on a home and your expected monthly mortgage payments.
One important way that you can start planning for mortgage success early on is to ensure your credit rating is as good as it can be. Also known as a credit score, this is a number that reflects the likelihood of you paying credit back, and lenders use these when considering your mortgage application.
You need to find the right mortgage deal for you.
To help you navigate the many types of mortgages available, consider seeking advice from an Independent Financial Adviser (IFA) or mortgage broker.
A mortgage in principle can be helpful for first time buyers in particular: a Which? survey in July 2019 showed 62% of first-time homeowners had taken one out before buying their home.
Once you’ve found a mortgage that you believe is right for you, you can agree it as a mortgage ‘in principle’. Also known as an Agreement in Principle or Decision in Principle, this is a written estimate from a lender stating how much they might lend you, although it’s not set in stone.
It’s not essential to get a mortgage in principle when making an offer on a house, but estate agents and sellers are often more likely to accept an offer if you already have a decision from a lender. So, having one can reduce the chance of delays in the home buying process.
You can usually get one quite quickly, within 24 hours or less, and they tend to be valid for up to 90 days.
Once you’ve found a home that’s right for you and your budget, you can make an offer - see our guide on making an offer.
Once this offer has been accepted you will need to arrange a survey so that you know about the condition of the house you’re buying and any problems it may have. Your mortgage lender may recommend a surveyor, but you can also arrange this yourself. This can take a while, and depending on the results, you may need to put money aside for repairs, talk to the seller again about your offer, or decide not to proceed with the purchase.
Remember: When you get a mortgage, you’ll need to make sure you can afford the repayments each month, if you can’t keep up with the repayments, your home may be repossessed.
When you’re ready you can then contact your lender or mortgage adviser to finalise your mortgage.
This takes much longer than a mortgage in principle, potentially more than one month from application to mortgage offer. This is because lenders need to check that you can afford to pay back the loan. They’ll work out your household income and compare it with your bills and outgoings to ensure you have enough left each month to cover the mortgage repayments. They’ll also consider whether you could still afford the mortgage repayments if circumstances changed, such as interest rates increased. Among, other checks, they’ll assess your credit rating to evaluate your ability to make repayments.
All being well, after you’ve received an offer, your lender will give you at least seven days to ensure you’re happy that the mortgage is right for you.
Depending on the lender, the documents you’ll need to apply for a mortgage might include:
- Utility bills
- Proof of benefits received
- A P60 form from your employer
- Your last three months’ payslips
- Your passport or driving license
- Bank statements of your current account for the last three to six months
This list, from the Money Advice Service, is just a start, and some lenders may require other information, for example if you’re self-employed.
It can be time-consuming to gather some of this information together, so start thinking about it ahead of making your mortgage application.
Planning ahead as much as possible for your mortgage application will help reduce the stress from your flat or house-buying adventure, and allow you to spend more time focusing on the good stuff – moving into your first home.
Click on the sections below to explore what you need to know at each stage of your home buying journey: