Published 16th August 2017
Getting approved for a mortgage is one of the most important steps to the home-buying or remortgage process. For many borrowers it can be a stressful time. Thankfully help is on hand and if you’ve had trouble getting approved for a mortgage or just want some guidance before you apply – you’re in the right place to find the specialist you need. Have a read of the info below or make an enquiry if you’re ready to get approved for a mortgage right away!
Get a mortgage approved today by enquiring on the form to the right, and we will pass you on to one of the experts who arranges previously declined mortgages every day:
How to get a mortgage approved
If you own a property already you may have a good idea of what to do, but we are asked questions by our visitor’s everyday about how to get approved for a mortgage and what the general mortgage approval process is. Although for most people there can be far more to these steps than covered below (especially step 5 finding the right lender), I have summarised the process as succinctly as possible!
- Establish max borrowing (based on income)
- Establish deposit amount (based on savings / equity / gifts)
- Establish credit history (based on credit files)
- Establish rough max property and loan values (based on property types/sizes)
- Apply with the right lender (research yourself / use a broker)
Finding the right lender
Getting a mortgage approved is getting ever more complex with increases in regulation and tighter lending criteria since MMR and the mass ‘tightening of the belt’ by lenders since the credit crisis in 2008. Lenders have become far more focused on their ‘core customers’ and as such many who visit the high street can struggle unless their situation is completely straightforward. This has created gaps in the market where creditworthy customers are unable to find the mortgages they need. Thankfully, these gaps continue to be filled as the market recovers, financed by specialist lenders (old and new), and a relaxation of criteria into more niche areas.
What this has created however, is a tricky landscape to navigate, and you’d be forgiven for not knowing where to look – many brokers themselves have a hard time! With so many lenders only offering mortgages to specific customers across so many disciplines, if you are in a unique situation just going to your own bank is no longer an option. In fact, going to several banks on the high street usually isn’t. This is where good brokers fill a very important role.
“A good broker not only knows the market, they know your market”
What I mean by this is that most brokers say they are ‘whole of market’ but deal in the most part with customers that many would consider straightforward borrowers, and they arrange good volumes of top rate deals for customers without issue and many of them are very good at it. However, as soon as a customer walks through the door and they have bad credit, unusual self-employed income, or just a unique scenario that the broker hasn’t come across before, they will struggle to know what to do and which lenders might accept them.
Typically the broker will do some research into the lenders on the rates tables until they find one to fit, but often this is an extremely time consuming process, and if the broker doesn’t fully understand the situation or know which lenders would consider the applicant then they may give up before finding a solution – there’s little point having access to the ‘whole market’ without actually knowing it. The process of getting a mortgage approved in a more specialist scenario like this can also be very different, and it’s often important each application is packed in the right wat for the lender, so they underwriters can understand the reasons for lending and give the best possible chance of approval.
A specialist broker, someone who handles these types of application on a daily basis, already knows how to get a mortgage approval and with which lenders before the customer even walks through the door. To speak to one of these, make an enquiry now.
How long does it take to get a mortgage approved?
The mortgage and secured loan approval process can take a completely different length of time depending on both the customer and the lender. Almost every lender will split an application into 2 parts – Agreement in principle & Full underwritten application leading to mortgage offer.
An AIP is basically a pre-approval of the mortgage, based on the info submitted and the customers’ credit score – although the lender will want to assess more documents to check the info submitted is accurate, this AIP is often a solid indication that the mortgage will be approved at full application. This can be done in a matter of minutes/hours of finding the right lender.
The full underwritten application approval is when the lender has either automatically or manually checked the application in line with any documentation submitted, and is happy to authorise the mortgage subject to the valuation on the property being acceptable. Once the property is accepted the mortgage will then be confirmed as ‘offered’ formally, which means the mortgage is set up ready to go when the solicitors and all parties are ready to complete the transaction. The time taken from submitting the full application to obtaining the agreement is usually several working hours for most mainstream lenders, but can be several working days for the more specialist lenders. This is on the basis that all required documents are provided upfront – it can take longer if processing is delayed waiting for customers to send in further info.
Straightforward applications (most employed borrowers with clean credit and good affordability) that can fit with any lender from the top of the rates tables can be approved in principle on the same working day, often within minutes if there is a particularly urgent need.
Tricky applications (anyone falling outside of the above i.e. adverse credit / self-employed / low deposit / high loan to income ratio) can take longer than this for a number of reasons:
- Increased research time
- More thorough application processes (more info required upfront in order to make the decision, and occasionally applications need to be submitted on paper rather than electronically).
- More thorough underwriting processes. Most of the time the lenders that accept non-standard applications will underwrite applications manually which often means they cannot give an accurate pre-approval and a fully packaged application with all documentation requirements sending through for consideration before an agreement can be made.
What is a mortgage pre approval?
A pre-approved mortgage is basically an agreement to lend to a customer before a property is found and full application submitted. It can often be a physical certificate that outlines the lender is happy to approve the mortgage based on the info provided up to that point, and may also indicate the maximum loan available to the borrowers.
How to get a mortgage pre approval
The process of getting a pre-approved mortgage in the UK is very different now to what it was years ago, and for a lot of borrowers and professionals the meaning of the approval has itself changed, becoming much more of a positive indication the lender might lender, than an actual mortgage-guarantee.
Although credit scoring models have been developed to give a more accurate upfront decision to lend, in recent years lenders have placed far more importance on verification of documents and an assessment of the overall case at full application stage, only making a solid decision once all documentary evidence is collected and assessed. There are a number of reasons for this, notably the abolition of self-certified mortgages; the introduction of more stringent document checks; MMR and more strict affordability requirements; increases in the numbers of unique working contracts (such as agency, casual, zero hours, and umbrella companies); increases in the number of self-employed applicants; amongst many other factors. MMR has placed greater responsibility on lenders to assess affordability and as such the number of questions asked and hoops to jump through has increased.
Even so, borrowers will need to pass the initial agreement in principle (AIP) stage to move on to a full application, which can then only be submitted once the customer has their offer accepted on a property and is ready to get it valued. Unfortunately we come across a lot of potential buyers putting offers in on their dream home, armed with an AIP that is useless as the lender that approved but has not yet seen the full case would have never given them the mortgage – Being declined at this point leads many people to panic, and it’s when they get on the phone to us to rescue the application and the property – stress levels rise and the process can seem all the more daunting. It can also be costly financially, as often these lenders will only assess the application once upfront fees and valuations have been commissioned, often non-refundable.
For this reason we always always always recommend anyone with a unique or out of the norm situation to get in touch with the right broker who already knows which lenders will accept them on full application, so when they have the AIP they know it holds weight and they are likely to move to completion without drama. The broker should also consider placing the valuation on hold until underwriters have approved the mortgage – an underused but valuable practice. If your application is not straightforward and having the valuation booked in is not an immediate necessity, then ask your advisor to do this as it could save you some serious time, cash, and heartache!
So why do I need a preapproval for a mortgage?
The AIP is important because you need to know you pass credit score with the lender you’re applying, and also because at this stage there will be a firm indication of the maximum you can borrow. Also, for estate agents and vendors the AIP helps whittle out time wasters. They are desperate to ensure that anyone making an offer on a property has the money to do so, preventing any lengthy drawn out sales to buyers that may have never been able to finance the purchase.
When to get mortgage pre approval
Typically once approved AIP’s are valid for up to 3 months, so you would want to apply within 3 months of putting an offer in on a property, up to the same day. It is always advisable to get the AIP in place before you try and purchase, so you know you have the money behind you and have an idea of what you can afford to borrow. If you are looking to buy in 6 months-time then it might not be worth obtaining an AIP, but still certainly worth talking to an expert so you know what you’re looking to do is possible, otherwise you could spend the next 6 months looking for properties out of your range!
Often, especially if things have fallen through at the last minute, borrowers come to us requesting an instant mortgage pre approval, which is certainly possible – we offer a red carpet service through the brokers we work with for these situations where speed is paramount. Visit the express mortgage approval page here.
Where to get a mortgage pre approval
You could go to your bank, you could visit a few, or you could have a professional broker source you the best deal. As above, if your situation isn’t straightforward we would always recommend you use a broker who knows the market specific to your situation.
You can of course get a mortgage pre-approval online with the brokers we work with, just bear in mind they will need to verify your identity and income etc. following FCA guidelines using original documents that will either need to be hand delivered, collected, or posted.
How much does it cost to get a mortgage pre approval?
It is usually free to get a mortgage approvad, however some brokers will charge commitment fees to ensure applicants use their services – don’t be put off by this, its common practice as there is a lot of work involved to get the AIP and few people want to work for free!
Can I get approved for a mortgage?
Loads of our visitors ask us ‘how hard is it to get approved for a mortgage?’ , often for a wide range of different reasons. The question is usually asked because the individual has either: tried and failed to get approved, is thinking about applying but has a few specific queries, or literally doesn’t know where to start. For many people, getting approval for a mortgage can be completely straightforward and not the daunting experience some fear, however certain factors can make the process more difficult. For instance, anyone with adverse credit, anyone self-employed, or anyone looking for something unique.
Generally approval is based around several key areas:
- Affordability (How much can you afford to borrow, and is your income acceptable)
- Deposit (Do you have enough, and is the source acceptable)
- Credit history (Have you had any credit issues in the past? If so you may need more deposit)
If the mortgage is easily affordable, your income is straightforward, you have enough deposit and a clean credit history, then you are likely to be approved by most lenders. Anyone who has something even slightly off centre may struggle to find the right lender to accept them – this is where a skilled broker is often required.
What documents you need for a mortgage pre approval
In order to get approved you’ll likely be asked for several things in order for the bank / your advisor to establish certain things about your situation. Exactly what is needed to get prequalified for a mortgage will differ person to person, but generally you’ll need to:
- Evidence your ID (Passport / drivers licence)
- Evidence your Address (utility bills / council tax statements)
- Evidence your income (payslips / self-employed accounts or tax returns)
- Evidence your outgoings (bank / credit card / mortgage statements etc.)
By rights your advisor should be collecting all of this information before starting their research into the market, because every lender differs on what they will / won’t accept in terms of documents for a mortgage approval. However, unfortunately not every advisor implements this best practice and often time can be wasted, not to mention unnecessary damage to your credit file with pointless applications to lenders that wouldn’t have ever offered what you’re looking for.
If you’ve read the other info on this site you’ll also know that every lender also differs on their criteria and what they deem as suitable income – as such, it would be difficult for an advisor to get you an accurate pre-approval without first seeing your income evidence. For instance if you are paid 30k basic then every lender will assume you have 30k income, but if you have 25k basic and 5k overtime or bonus, then the majority of lenders will only deem you to have 27.5k (taking into account only 50% of the additional income). If you are looking to borrow to a high loan to income ratio, then your advisor at this point would need to apply with a lender taking into account 80 or 100% of this additional income – then the job becomes much more than just researching the best rates.
Online Approval calculator
Visit the ‘how much can I get a approved for’ calculator here. Bear in mind that if you are looking for the EXACT amount you can borrow then you won’t find it. In fact, you won’t find it anywhere online because it really is dependent on various factors, notably your income type and amount; your current level of commitments; your credit history; and your credit score. The only way to find this out is to make an online application and speak to a specialist.
However, in the absence of an exact mortgage approval calculator, we have collated some rules of thumb to give you a solid idea of the ball park (pre-application).
- Maximum borrowing usually = 5x your joint gross annual income.
Most lenders will limit borrowing to 4x income, some 4.5x, and one or two up to 5x income. If you earn £30k and your partner earns £20k, you have combined £50k. 5x 50 = £250,000 max borrowing. Bear in mind that the total income each lender will deem you to have can vary, as mentioned above. 30k basic income = 30k. 25k basic + 5k bonus is likely to = less than 30 with a lot of lenders, depending on how reliable the bonus income is. If you are self-employed then you should read more about how your income is calculated here, but typically sole traders can use their net profit figure, and ltd company directors their salary + dividends (some allow use of retained net profit also).
- Income stretches.
Occasionally you can go higher than 5x income with a couple of lenders, depending on your situation, up to 6x maybe even 7x your income. The case as a whole needs to be attractive enough for the lender and it’s on a case-by-case basis. For instance, someone borrowing at 95% loan to value with no savings in the bank, a history of bad credit and no real track record or prospects for their income to increase in the near future might struggle; whereas someone with clean credit, borrowing at 50% loan to value with savings in the bank and a career that should progress quickly financially, might have a far better chance.
- Deductions for commitments.
Lenders will usually establish affordability based on (your income) – (your outgoings). If you have a personal loan then they will likely deduct this from your annual income to the tune of the annualised figure (note this is not exact by any means but give you an idea based on a lot of lenders calculators). For instance, a £250pm personal loan = 3000 per year. If you are earning £50k then they will equate you to be earning £47k, and thus the 5x income calculation above to establish max borrowing is 47 x 5 = £235,000.
- Adverse limitations.
If you have had adverse credit in the last 6 years, depending on how severe and recent, it is likely you’ll be limited to 4x income. Some specialist lenders are willing to go to 5x income if you have enough deposit (min 15%) and your adverse credit is either older than 2 years or a smaller issue more recently. For example, anyone who has missed a few payments on a credit card or has a small default in the last 24 months should be ok, whereas a bankruptcy 2 years ago is not likely to be approved over 4x income.
So how much mortgage can I get approved for?
To find out visit our mortgage approval calculator or for a more accurate figure make an enquiry and we’ll pass you to the specialist.
Mortgage approval with bad credit
Anyone looking for a low credit score mortgage approval, or a mortgage approval if you’ve had bad credit, should be comforted to know that borrowing is not only possible, the rates of interest are often still extremely competitive.
The process of mortgage pre-approval with bad credit might be slightly different than for those with clean credit histories because lenders need to fully underwrite applications based on the entire customer profile. This is once a property has been agreed upon and all supporting documents are submitted for review. Most people with clean credit can get fairly accurate instant decisions as the credit scoring systems are well automated, whereas the specialist lenders offering adverse credit mortgages tend to have a slightly more manual process. Thus, although bad credit mortgage pre-approvals give a good indication lending will be approved, they often hold less weight. It is still standard practice for these lenders to credit score/search and issue you with a pre-approved agreement in principle, which is usually enough to satisfy your estate agent. However, they will manually check the application and all documents thoroughly before a full mortgage offer is granted. For this reason it’s always recommended that you ask your advisor to hold off on any valuation of the property until the full agreement is reached, because if you instruct the valuation upfront and the lender later declines you, any fees paid are not likely to be refunded.
“What credit score do I need?”
You don’t necessarily need a good credit score for a mortgage approval, but it helps. If you have obtained copies of your credit reports already then you can generally disregard any numeric figure they give (Experian out of 1000, Equifax out of 500 etc.). These are completely different to the scores lenders will give you, and each lender has their own ‘pass’ mark anyway. One lender might score a pass and another a fail for the same application – it is entirely dependent on their interpretation of the risk you pose, and their appetite to lend at the time you apply.
If you haven’t yet obtained your credit reports then you can do so for free here. Make sure you get all 3 reports as they are often very different, and issues on one report may not show on another.
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Mortgage approval with self-employment
If you are self-employed the process remains the same as for any other borrower, and you can still obtain a pre-approval. It is important to make clear the nature of your income from the outset however, as each lender will consider your application differently.
Key factors that will impact which lenders you can use:
- Length of time you have been trading.
If you have only been trading for a short time, say less than 3 years, there will only be a few lenders to consider your application. It is possible to find a mortgage up to 5x your income even if you have only been self-employed for 12 months.
- Profit and accounting history.
Most lenders take an average of the last 3 years income, some average the last 2 years, and a few specialists will lend based on the most recent years figures. Therefore if your income has remained constant over the last 3 years you should have access to most lenders; if your income has increased more recently then there may only be a few lenders that will use the higher figures; and if your income has decreased lenders are likely to only use the lower more recent figure.
- Figures used.
Sole traders = your net profit
Partnerships = your share of net profit
LTD company directors = salary + dividends (Some specialist lenders will accept share of net profit for ltd company directors allowing you to borrow based on your retained profits).
For the above reasons, the maximum borrowing calculated on self-employed mortgage approvals can be trickier to establish but generally borrowing can be up to 5x income.
Additional requirements for self-employed borrowers.
Most lenders will ask what your personal income has been from the business over the last 3 years, and will want this evidenced by either business accounts or tax returns (SA302 forms), and business + personal bank statements. In some instances you will be asked to provide a reference from your accountant to verify any queries the lender may have and in others they will need proof that your accountant has the required qualifications. You will also need to provide the standard documentation such as ID and address proof.
Mortgage approval certificates
Most estate agents will demand evidence that you have the finances behind you to purchase the property before they will take your offer seriously. Typically this is provided in the form of mortgage pre approval letter/agreement in principle certificate. They will have your name and the lender details on, along with confirmation that, subject to a successful property valuation and the information on your pre-approval application being correct, they are happy to lend to you. Some lenders also state the maximum they will lend you, or the figure for which you have applied.
Make an enquiry today
To ask an expert a question about getting your mortgage approved, fill out the quick enquiry form below. If you need a mortgage approved fast then visit the express mortgages page.