You’ve saved your deposit and found your dream home. Now, you need to know how to get a mortgage. So where do you start?
With thousands of mortgage products available from dozens of lenders, finding the best first-time buyer mortgage can seem like a minefield. However, following these simple steps can help you to get the right mortgage. Keep reading for your essential first-time buyer mortgage guide.
How to get a mortgage? Be prepared
Any advice about how to get a mortgage starts with preparation. Every lender will need to see a range of documents to confirm your identity, evidence what your income is, and establish whether you can afford the repayments now and in the future.
Most lenders will need to see:
- ID – your passport or driving licence to prove who you are.
- Proof of address – bank statements or utility bills. If you’ve recently moved home a lender may also need to see proof of residency at a previous address.
- Proof of income – if you’re employed you will need at least three months’ payslips. If you receive bonuses or commission, you may also need to provide your P60s to confirm your total income. If you’re self-employed you will generally need your most recent two years’ accounts, SA302s or tax returns.
- Proof of affordability – you are likely to have to provide 3-6 months’ bank statements so your lender can check that your new mortgage is affordable to you.
Preparation isn’t just about finding all the paperwork you’re likely to need. It’s also about making sure that you have enough cash in the bank to cover your deposit, your legal fees, Stamp Duty (if applicable) and any mortgage charges.
You also need to ensure that you are a good ‘risk’ to a lender. That means not going overdrawn on your current account. It also means managing any credit that you have. Make sure you have made any payments to loans, credit cards and hire purchase in full and on time.
Check your credit file
All lenders will access your credit file, for three main reasons:
- To prove your address and find you on the electoral roll
- To see how you have managed financial commitments in the past
- To check you haven’t defaulted on any financial products, received a County Court Judgement (CCJ) or that you have been made bankrupt.
Your credit file will tell a lender if you have missed any payments on loans or credit cards, or if your payments have been late. Any defaults or missed payments can count against you when you’re looking for your first mortgage.
Companies such as Experian, Callcredit and Equifax let you access your credit file so you can check what information is held about you. Doing this lets you correct any mistakes and helps you to make sure that your credit record is as good as it can be.
See what help is available
In recent years the government has launched a number of initiatives under the ‘Help to Buy’ banner designed to help first-time buyers to get onto the property ladder. Schemes include:
- Equity loan – an interest-free loan to help you put down a bigger deposit and access better interest rates.
- Help to Buy ISA – a savings scheme in which the government gives you a cash bonus based on the amount you save.
- Shared Ownership – a part-buy/part-rent scheme where you buy a percentage of the property at the start, pay rent on the remainder of the property, and buy additional shares at a later date.
You may be eligible for one or more of these schemes. A financial advisor can help you further.
With more than 4,500 mortgage products available in the UK, finding the right deal for you can be tough.
That’s why it is important that you shop around to get the most appropriate deal for you. Using ‘best buy’ tables and heading online can help you to compare the best interest rates that are available.
However, shopping around also means finding the right lender. Sometimes the lowest rates have the most stringent underwriting criteria. If anything about your circumstances is out of the ordinary – perhaps your income is partly made up of a bonus, or you are a contractor – then some lenders simply won’t consider you.
Speaking to an independent broker is often how to get a mortgage. They have a wide knowledge of the market and will not only help you find a good deal, but also find a lender who is sympathetic to your circumstances.
An independent advisor can also provide advice on:
- The right type of mortgage – for example, repayment or interest only
- The most appropriate deal – fixed, variable, tracker or offset rate
- Any associated insurances such as buildings and contents, or life cover.
Get a decision in principle
Most lenders offer a mortgage ‘agreement in principle’ service. This is where a lender will take some basic information from you, run a credit check, and let you know if they are prepared to lend. They can also let you know how big a mortgage you can get.
A decision in principle is not binding, and a lender can still reject your application at the underwriting stage. However, getting an early agreement gives you the peace of mind that you are likely to be able to get the mortgage you need.
A decision in principle can also put you in a good position when you make an offer on a property. Demonstrating that your mortgage has been agreed in principle shows that you are a serious buyer and that you’re in a position to move forward.