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Getting a mortgage

This guide aims to help you understand mortgages better and is in three parts. In part one, we explain how to get a mortgage.

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It is easy to feel overwhelmed by the complexity of different mortgage providers and products.

Fortunately, once you know the basics you will be able to narrow down your choices and make a sound decision. This guide is in three parts. In part one we explain how to get a mortgage.

What is a mortgage and how does it work?

Unless you’re one of the lucky few who has enough to pay for a home outright, you will need to borrow the money to pay for your new home. A mortgage is basically a loan specifically designed to help people buy a property. As the mortgage loan is likely to be such a big sum of money, you can repay the amount you borrow monthly over a much longer period of time than a standard loan – usually the repayment term can be up to 30 years.

A mortgage works like a normal loan in that the lender will agree to lend you a certain amount of money based on what you can afford. You then repay this mortgage amount by making monthly repayments. The amount of your monthly repayments depends on the interest rate offered by your mortgage lender – which will be related in some way to market rates such as those set by the Bank of England.

If you don’t keep up with the repayments on your mortgage, the lender could repossess your home and sell it to pay off your loan. Therefore, it is vital that you choose a mortgage you are comfortable with and that you can afford.

Do I qualify for a mortgage?

To borrow money to buy a property you will need to apply to a mortgage lender. Before they agree to lend you money, your lender will first want to see that you have saved a deposit and will then carry out checks and tests on your financial situation. These checks are based on a few different factors, which will give a numerical score known as a Credit Score. They include:

Credit check

A credit check looks at numerous financial factors and then (using a mathematical equation) totals them up to provide you with a score (known as a Credit Score). The factors include:

  • Online credit reports that look into all your credit agreements, your previous addresses and your past and current financial arrangements
  • The information you supply on your application form for the mortgage
  • Any business you may have carried out with the lender previously
  • Activity on your bank account

Lenders are looking for a high credit rating as that represents the lowest risk for them.

Affordability tests

As the name suggests, an affordability test is where the lender will ask you questions about your income and expenditure so that it can satisfy itself that you will be able to afford the monthly mortgage repayments.

Do I need a deposit to get a mortgage?

Before mortgage lenders (typically a high street bank) will consider lending you money, they will require some sort of deposit.

The minimum that most mortgage lenders look for is around 10% of the property value. So, if you are purchasing a property for £200,000 then most mortgage lenders will require that you have saved at least £20,000 before they will consider lending to you. However, some lenders might accept as little as 5% and this will depend on the type of mortgage you choose and your own circumstances.

What will I need to provide to a potential mortgage lender?

To help you plan ahead, here’s what you will typically need to provide your potential mortgage lender with:

  • Proof of earnings: if you are employed then this could include payslips or tax returns for each separate employment. If you are self-employed then you will need your previous accounts and/or projected earnings to prove how much you earn
  • Proof of other sources of income such as shares, pension or bonuses
  • Evidence of your spending/outgoings – this includes the amount you spend on essentials (food, cleaning, council tax, bills), lifestyle (clothes, personal items, entertainment) and any loans you already have
  • Proof of your deposit
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