Mortgage application process explained
Everything you need to know before start your mortgage application
Over the last five years, the mortgage process has evolved. Sure, the crux of it’s still the same, but it’s becoming increasingly digital as consumers seek faster and more transparent ways to borrow. That’s certainly the case with buy-to-let, where many investors use a mortgage to purchase their rental property.
With that in mind, we’ve put this guide together covering every aspect of what happens during the online buy-to-let mortgage application process, from a mortgage in principle (MIP) all the way through to completion.
Get ready for your mortgage application?
Preparation is key to a successful mortgage application. Before getting started, think about how much you want to invest from your own money, the value of the property you’re interested in and how much it could potentially earn in monthly rental income.
What is the property’s value?
How much is the property you’d like to buy, and can you afford the buy-to-let mortgage? These are questions you’ll need to ask yourself before applying for a mortgage. The value of the property will also dictate how much deposit you put down.
How much do you want to invest?
The amount you’re willing to pay for a deposit is a vital part for investing in buy-to-let. The higher your deposit, the lower the mortgage. That means your monthly repayment will be cheaper. Remember, most buy-to-let lenders require a deposit of 25% of the property’s value. Some lenders, such as Molo, ask for a 20% deposit.
What is the expected rental income?
For buy-to-let investments, projected rental income plays a major role. Consider the rental prices in the area, the property’s location and potential occupancy levels for an accurate estimation. Properties close to transport infrastructure and amenities typically achieve more rental income than homes in rural areas.
Is the MIP part of the mortgage application?
A MIP isn’t part of the official mortgage application. That comes after you’ve had an offer accepted on a property and begin the process of buying a home. Think of a MIP as your point of entry to getting a mortgage.
Again, it’s pre-approval from a lender – an acknowledgement saying that they should be able to lend to you as long as the information provided is correct. It’s the first step in the process and can give you a sense of how much you can afford to borrow. Once you have a MIP, you can start looking for properties within your budget and feel more confident making an offer when you find the right one.
What happens after getting the MIP?
Should you get a MIP, saying how much you’re likely to borrow, the lender will send you a certificate (usually via email). You can use this to show to estate agents and vendors, letting them know you have a MIP and are genuine about buying a property. From this point, you’ll look for a home to buy, viewing properties and making offers. Once you have an offer accepted, it’s time to start the full mortgage application.
Learn more about the first steps:
What happens after a mortgage in principle
What is a mortgage in principle
What do you need a mortgage in principle
What’s the process of an online mortgage application?
Choosing to get a mortgage online simplifies the process and allows you to speed up certain aspects of the application. Much of the information required is the same as a traditional mortgage, but you don’t need to provide hard copies as everything happens online. Here’s what you can expect if you’re getting a buy-to-let mortgage online.
Choose a mortgage product
Choose the best mortgage product that meets your needs and preferences, such as fixed or variable-rate mortgages. Lenders tend to have a wide variety of products catering to different needs. These have varying interest rates depending on the loan-to-value and how much you want to borrow.
Instruct a solicitor
After initiating the mortgage application process, it’s necessary to hire a solicitor to handle the legal aspects of buying a property. The solicitor’s responsibilities include conducting conveyancing checks to ensure that the property is legally available for sale, whether it’s freehold or leasehold and flagging any potential issues.
To accomplish this, the solicitor undertakes several surveys of the property which happen simultaneously to the mortgage application. Additionally, the solicitor arranges the transfer of contracts, establishes a completion date, and manages the transfer of mortgage funds.
Once you’ve had an offer on a house accepted, it’s time to complete the online mortgage application form. Each lender has its own requirements, but generally speaking, you need to provide the following details:
- Personal details such as your name, address and date of birth, such as a passport, driving licence and utility bills.
- Financial information like your income (three months’ payment slips), expenditure and employment status (payslips or tax return if you’re self-employed).
- Details about the property you’re buying, such as the purchase price and type of property
- Upload supporting documents, including payslips, bank statements and tax returns.
- For a buy-to-let property, you’ll also need to provide information about expected rental income and if the property has tenants already in situ.
Credit check
When you complete the full mortgage application process, the lender carries out a hard credit check, which is recorded on your credit report as a search. To avoid any negative impact on your credit score, it’s advisable to avoid applying for any other forms of credit during this time.
Credit checks are an essential factor in determining your mortgage eligibility. Your credit score influences the interest rate you’re offered, and a higher score increases the chances of being accepted. It’s important to familiarise yourself with credit scoring principles and take steps to improve your credit report if necessary.
Improving your credit score can be achieved in several ways, including paying debts on time, registering with the electoral roll, closing unused accounts, and maintaining a good debt to credit ratio. Additionally, utilising a credit-building website can help establish a higher credit score, especially for younger individuals who have not had the opportunity to build their credit history yet.
Underwriting and assessment
The lender will assess your application to determine whether you meet their lending criteria and if they’re willing to lend to you. This will likely involve a hard credit check, employment verification and other checks (more on this shortly).
Property valuation
The lender usually arranges a valuation of the property to ensure it’s worth the amount you want to borrow. You may need to pay for this valuation, although the lender may front the costs in some cases and include it as part of its service.
Mortgage offer
If your application is successful, the lender will make you a mortgage offer. This will set out the terms and conditions of the mortgage, including the interest rate, repayment terms and any fees or charges.
Accept the offer
Once you’ve received the mortgage offer, you can accept it online. Customer assistance is available throughout the entire process, but you can use them as little or as much as you need. The aim is to make everything seamless and easy to follow.
Exchange contracts
You can now exchange contracts with the seller and pay the deposit.
Completion
On the agreed completion date, the lender will transfer the mortgage funds to your solicitor, who uses them to pay for the property. You’ll then become the legal owner of the property and start repaying your mortgage.
Using a direct digital lender
What is an online mortgage?
An online mortgage is essentially the same as a regular mortgage, only everything happens online. From getting a mortgage in principle to uploading documents and checking the process of the application, it all takes place online.
There’s no paperwork or appointments, which significantly speeds up the process. An excellent online mortgage provider still offers the human and makes it easy for an applicant to get in touch if they need help. But borrowers can go through the entire process with a simple login and dashboard to follow the process of the application.
Do I need to use a broker?
Many borrowers use an intermediary, like a broker, when applying for a mortgage. With an online lender, however, it’s easier to go through a direct application than it is with a traditional mortgage. This is because everything happens online and there isn’t as much need for a go-between facilitating the application. That’s not to say brokers can’t still be incredibly helpful when getting a mortgage with a digital lender, but you do also have the option to go direct with the lender.
What do you need to apply?
Once you have a MIP from the lender, you need the same documents required for a traditional offline application. This includes:
- Proof of ID. For many, this is a passport or driving licence. An identity card may also be acceptable depending where it was issued
- Proof of address. A utility bill, council tax statement or even tenancy agreement if you rent is fine for most online lenders. It’s worth checking which utility bills are acceptable, however
- Proof of income. You need to be able to prove what you earn, either by providing payslips or a tax return if you’re self-employed
- Expenditure. Most lenders want to see between three and six months’ worth of bank statements to get a better idea of your income and expenditure.
Payments, fees and charges
There may be some charges associated with a buy-to-let mortgage, whether it’s online or offline. Many products have fees, which can either be paid separately or added onto the loan amount. For instance, if the mortgage amount is £250,000 and the fee is £1,000, you can add the fee to the mortgage, making the total due £251,000.
The lender may also charge a valuation fee, which is required to value the property you’re buying. Valuation fees are dependent on the lender and can cost anywhere between £300 and £1,000-plus. Again, some lenders charge a valuation fee while others don’t.
How does the underwriting process work with an online lender?
In a mortgage application, an underwriter is responsible for assessing the risk associated with the mortgage and determining whether the borrower meets the lender’s lending criteria. An underwriter evaluates your financial status, creditworthiness and the value of the property being mortgaged to determine the level of risk involved in offering the mortgage.
It’s their role to ensure the lender is making a sound investment by reviewing the borrower’s application and verifying all the information provided is accurate and complete. This includes checking your employment history, income, credit score and any outstanding debts or financial obligations. The underwriter also assesses the property’s value to ensure it’s worth the amount being borrowed.
Based on the evaluation, the underwriter will either approve or deny the mortgage application. If approved, the underwriter may also recommend certain conditions that the borrower must meet to qualify for the mortgage, such as providing additional documentation or securing mortgage insurance. Ultimately, the underwriter’s goal is to minimise the risk to the lender while ensuring that you can afford the mortgage and are a suitable candidate for lending.
The process typically looks like this:
- Case preparation. Getting all the relevant information you’ve provided together
- Initial underwriting. Reviewing the details, including your proof of ID, address and income
- Additional information (if necessary). In some cases, the underwriter may require more information
- Property valuation. Arranging to have the property value by a professional
- ID verification and terms of the mortgage. Verifying any last bits of information and preparing the terms and conditions of the mortgage.
Getting a buy-to-let mortgage online
An online buy-to-let mortgage application process can be simpler and faster than traditional methods. The entire process is managed with ease and speeds up the application time, meaning you get access to the required funds to buy a house faster.
Molo Finance is an online mortgage lender offering buy-to-let mortgages. Our platform simplifies the application process, allowing borrowers to complete everything digitally. We offer a range of mortgage products with competitive interest rates and use advanced technology to underwrite applications, providing decisions in a timely manner.
Find out more about how Molo works