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Mortgage Application Checklist - Everything you need to know

Making sure that you have everything ready for your mortgage should start months before the application itself – getting your finances in good order is every bit as important and remembering that last bit of paperwork! Here to help is the definitive The Mortgage Hut Application Checklist!

The very early days

One of the very first things you should consider when deciding to buy yourselves a home is the deposit. This is the single most difficult part of the mortgage process for most people, as deposits represent a significant investment on your part.

Assuming your finances are in order, you should be looking for between 5% and 10% of the property value as a deposit – and the more you can afford to save, the better the mortgage deal you will be able to get.

There are a few ways to secure a deposit, but the single most common way to do so, is simply to save for it. It can take years to save the right amount of money, but it is worth it in the end. It’s also possible to get help from family or close friends – this type of deposit is called a gifted deposit.

If you are buying your first home a Lifetime ISA is the best way for most people to save for a deposit. Through the scheme, the government will top up your savings with a 25% bonus up to £1,000 per year; it’s a good way to get a helpful extra boost.

Often you will want to get a joint mortgage too. This will help as there are two people saving, and if you are using the Lifetime ISA scheme, it’s possible to get an extra £2,000 each year.

Currently, the average price of a home in the UK is £233,000. This represents a minimum deposit level of £11,650; over two years of saving for most people, even with the ISA addition – so starting early is key!

Deposits when you already own a home

If you already have a property, it is usual that you do not save a new deposit, but use the equity in the property to obtain a mortgage for the move.

Equity is the value of the home that you own, easily calculated as the market value of the property minus the remaining balance of the mortgage. A £300,000 property with £180,000 remaining on the mortgage has equity of £120,000 or 40%. The LTV on this example property is 60%.

Moving to a £400,000 property and using the full £120,000 equity above would require a 70% LTV mortgage – something that would be considered by most lenders.

Deposits for buy-to-let mortgages

When you are looking to buy a second property as a buy-to-let investment and become a landlord, the deposit criteria is somewhat stricter. Lenders are likely to offer 75% or lower LTV mortgages, meaning a deposit of 25% or more.

Some people remortgage their main property to raise the capital for a buy-to-let property.

One year to six months before application

Your credit history is a significant part of the mortgage providers risk assessment. Making sure your financial affairs are in good order will make all the difference. Part of that is taking the time to regularly check on your credit report and maintain a good level of money management.

Checking your credit report

In the UK, there are three Credit Reference Agencies (CRAs) who keep a record of your credit history; these are Experian, Equifax and TransUnion.

You are fully entitled to see your record online for free, and all three companies provide portals for you to do so. It is a good idea to register and regularly make your own check on your report to see what is being held about you.

You can contact the CRAs to amend any mistakes if they exist, and work to improve any aspect of your report that is potentially damaging.

Improving your credit report

There are a number of things you can do to improve your credit score and build a good report, including:

  • Ensure you are on the electoral roll - this is a basic check lenders are keen on to make sure your identity is verified. If you are not registered, or if you have moved and not updated your address, do so.
  • Pay off unsecured debt - if you have any personal loans or other unsecured debt, it helps a lot if these are paid off in full before your application for a mortgage. This includes making sure you are not regularly going into your overdraft, whether pre-arranged or not.
  • Have a well-managed credit card - a credit card that’s been overused is not a good sign, but a well managed card that is regularly paid back can actually boost your credit score. Look to maintain a low value card with regular use and consistent payments.
  • Put bills in your name - regularly paying your energy bills, internet or mobile phone contract will show on your credit report but it can’t if you are not the named account holder! Make sure bills that you pay every month are registered to you in order to show your good management.
  • Close unused accounts - dormant credit accounts can damage your score. Close off anything you are not using.
  • Distance yourself from old poor connections - your credit history includes an association with anyone you have been financial involved with. This can include ex-partners and sometimes old roommates who may not have a good credit report. Contact the CRAs and update them on your relationships to fix any bad associations.

Time is also a large factor here. Credit issues, such as a CCJ or default, will remain on your credit report for six years. The further back they are, the better your chance of a good mortgage deal so sometimes the only thing you can to do to truly heal your credit history is to wait.

Improving your debt to income ratio

Debt to income ratio (DTI) is another factor that lenders use to assess your application. It is a percentage figure based on your monthly debt payments divided by your gross monthly income – you can learn more about calculating your DTI in this article.

If you debt to income ration is high (above 40%) then this may impact your mortgage chances. Try to pay off debt to lower the ratio well in advance.

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