Preparing for a mortgage application in 2022

It can be stressful to know what to do when applying for a mortgage, and how to prepare in the most effective way. We will cover everything you need to know about a mortgage and how to be successful in the process.

What is a Mortgage? 

In a mortgage, you agree to repay a lender the money they lend you for a property over a period of time. The term “mortgage” refers to a loan used to purchase or maintain a home, land, or other types of real estate. The borrower agrees to pay the lender over time, typically in a series of regular payments that are divided into principal and interest. The property serves as collateral to secure the loan. A borrower must apply for a mortgage through their preferred lender and ensure that they meet several requirements, including minimum credit scores and down payments. 

There are hundreds of options on where you can get a mortgage. You can get a mortgage through a credit union, bank, mortgage-specific lender, online-only lender, or mortgage broker. No matter which option you choose, compare rates across types to make sure that you’re getting the best deal.

Why do people need mortgages?

The price of a home is often far greater than the amount of money that most households save. As a result, mortgages allow individuals and families to purchase a home by putting down only a relatively small down payment, such as 20% of the purchase price, and obtaining a loan for the balance. The loan is then secured by the value of the property in case the borrower defaults.

Evidence of Income

Would-be borrowers begin the process by applying to one or more mortgage lenders. The lender will ask for evidence that the borrower is capable of repaying the loan. This may include bank and investment statements, recent tax returns, and proof of current employment. The lender will generally run a credit check as well.

If the application is approved, the lender will offer the borrower a loan of up to a certain amount and at a particular interest rate. 

For your application you will need:

• Your last three months' bank statements
• Your last three months' pay slips
• Proof of bonuses/commission
• Your latest P60 tax form, showing income and tax paid
• Your last three years' accounts or tax returns (if self-employed)
• Proof of deposit and latest 3 months’ savings account statements
• ID documents, this can be a passport or driving license
• Proof of address, this can be in the form of utility bills or credit card bills

Get Pre-approved 

Homebuyers can apply for a mortgage after they have chosen a property to buy or while they are still shopping for one, a process known as pre-approval. Being pre-approved for a mortgage can give buyers an edge in a tight housing market, because sellers will know that they have the money to back up their offer.

The Bottom Line 

Mortgages are an essential part of the homebuying process for most borrowers who aren’t sitting on hundreds of thousands of dollars of cash to buy a property outright. There are a multitude of different types of home loans available for whatever your circumstances may be. Different government-backed programs make it possible for more people to qualify for mortgages and make their dream of homeownership a reality.