Nothing beats the feeling of moving to your dream property. However, buying a new house can be an overwhelming financial experience; keeping in mind that this could be one of the most expensive purchases one would ever have to make. It can trigger a lot of anxiety, having to wait for your mortgage to be approved. Different lenders vary in their mortgage approval process, and not every lender will approve a mortgage subject to valuation. So how exactly do you know that your mortgage has been approved? Here is an overview of the basic steps in the mortgage approval process, from rolling out an application to closing.Get an Instant Quote >>
1. Pre-application and Application
Before making any mortgage application, it is crucial to ascertain that your financial status is appealing to lenders. Lenders are likely to have issues with your application if you have a bad credit score. Approach the credit referencing agencies responsible for compilation of your credit report and update your credit score where need be. Once you have established the type of mortgage you want, you can identify a potential lender whom we will assist you to approach for an Agreement in Principle (AIP).
An AIP, also known as Decision in Principle, is an agreement by a lender to lend you a mortgage. However, the agreement is ‘in principle’, meaning that it is subject to some assessment and approval of the house you intend to purchase. Once we have secured an AIP with your preferred lender, you can initiate a formal mortgage application. Supporting documents such as bank statements and payslips may be required before placing an application.
Identifying the Right Mortgage Lender
With the increased regulations in mortgage-lending criteria, getting your mortgage approved is likely to bump into a myriad of complexities. Most mortgage lenders are now focused on providing mortgage loans to specific customers. To get the right mortgage lender for your situation, you will need to put into account several factors, including;
• Checks on credit scores. If you have an unfavourable credit score, then you will need a lender that is not strict on their checks on credit scores.
• Mortgage rates. An ideal mortgage lender will not charge mortgage rates above the market rates.
• Loan facilities and fees.
• Lender’s reputation.
Once your mortgage application has been submitted, the lender will assess and underwrite it further. Several factors are evaluated to determine your capacity to repay your mortgage. The assessment process involves scrutiny and checks on documents submitted during the application. Some basic documents required during the application process include proof of identity documents such as an ID or Passport, proof of address documents such as utility bills, and proof of your income and expenses. Some lenders will require more documents to support your financial capacity. These documents hold essential information, such as your work history, financial accounts, previous residences, borrowing history, payslips, and financial statements. Lenders will also carry out affordability assessmentsat this stage. This involves an evaluation of your net monthly income to determine whether you would still afford to repay your mortgage in the event of increased interest rates.
A mortgage valuation is a survey launched by the lender to establish the validity and value of the property you want to buy. In addition to checking the price of the property, valuation also seeks to verify the value of similar properties within that region, possible defects likely to interfere with the property’s value, and the general condition of the house. If the house is in a condition against which the lender is unwilling to lend you a mortgage, your mortgage application might be rejected. Such circumstances would include;
• Overpriced value compared to the actual property value.
• Property located in a high-risk flood zone.
• Structural defects cited on the property.
• House situated above a commercial property such as restaurants or shops.
What Valuation Entails
Most lenders will appoint their surveyor who will is obliged to carry out a valuation on the property that you intend to buy. Once the surveyor is done with undertaking property valuation, they compile their findings into a 2 to 3-pages report. The valuation process is to the advantage of the lender and not the client applying for a mortgage. Most lenders, therefore, might be discreet in revealing the findings of the report to the client in question. While some lenders will not charge you for the valuation process, most of them will require you to pay a valuation fee when filing a mortgage application. Your mortgage adviser will guide you on possible mortgage fees before making an application to eliminate unnecessary surprises.
When you need a more detailed survey in addition to a mortgage valuation, here are some three more options;
- Homebuyer Report
This is a detailed survey outlining structural defects of the property you intend to buy. However, this report does not provide details of the property beyond floorboards and the property walls.
- Building Survey
This is a more comprehensive survey compared to the homebuyer report. It outlines the condition of the property, looking into both interior and exterior defects. This survey is ideal for an older property or one with more structural problems.
• Full-building Survey
This is the most comprehensive survey that one can carry out. It provides you with an in-depth analysis of the property’s structural status, including defects, maintenance options, and repairs. The survey is ideal for larger houses, properties in poor conditions, or a house where you intend to make structural alterations.
4. Mortgage Offer
With a mortgage offer from your lender, you are almost done with having a mortgage with you. A mortgage offer implies that your lender is pleased to lend you the amount you requested. The offer is made by the lender based on your loan request, property value, and your mortgage product. At this point, your mortgage adviser or conveyancer will guide you on possible changes before accepting the offer. Most lenders assume that the use of a mortgage offer to complete a purchase of property is an implied acceptance of the offer.
You should keep in mind, however, that your lender cannot send you a mortgage offer if there are concerns with your valuation. The valuation report is the determining factor of whether the lender will be pleased to lend you the money you need.
Once you have accepted the offer, signing contracts and processing payments to your seller are the only activities left. Your solicitor and the seller’s solicitor will make arrangements on contract signing dates. Exchange and signing of contracts imply that you are legally bound to buy the property and make mortgage repayments. Your solicitor receives money and sends it to the seller’s solicitor for property payment. Once the seller has received their full payment, they hand over the property’s keys, and you become the official homeowner of that property.