The mortgage process explained
The mortgage process can seem confusing if you've not gone through it before. But in reality, it's quite straightforward. Here's how it works:
Completing the fact find
First, your mortgage broker will spend some time reviewing your Fact Find information with you. As the name suggests, a fact find is a deep dive into your personal and financial circumstances, as well as your mortgage preferences such as whether you want:
- A capital repayment mortgage or interest-only
- A fixed, tracker or discount mortgage rate
- the ability to make overpayments
- the payments to run into retirement
Sourcing a deal and getting a decision in principle (DIP)
With the fact find completed, and having reviewed your credit file, bank statements and other documentation, your advisor can then source the most suitable mortgage deal based on your needs and preferences.
After presenting an illustration of the sourced mortgage product to you, and assuming you're happy with it, the broker will go back to the lender to get a Decision in Principle or DIP for short.
You may also hear a DIP called an AIP or Agreement in Principle. It's one and the same.
The mortgage provider's DIP decision is automated and usually instantaneous. If the decision is Accept, you're all set to proceed to a full mortgage application.
Less straightforward cases might return a result of Refer. That means the DIP decision will be referred to the underwriter's lending team, and they usually come back with a decision in a day or two.
Your mortgage broker won't need all your documentation at this point but will need to know your earnings. Ideally for the last three years, if you've been trading that long.
A DIP is not a guarantee you'll get definitely get a mortgage offer. That comes later. But it does mean that based on the information provided, the mortgage lender is happy to lend you the loan amount requested.
Most mortgage lenders only carry out what's called a soft search at the DIP stage. A soft search won't affect your credit score.
It's important to note a DIP is not tied to any particular property either, so you can get one before you've even found the home of your dreams!
Finding a property to buy
Next, it's the fun part, the property hunt!
Knowing how much you can likely borrow will allow you to make an offer on a property with confidence.
And with a DIP in place, you'll find many estate agents keen to talk to you, because it shows you're serious and have funding lined up.
Self-employed mortgage documentation
As soon as you've found the property you want, and your offer has been accepted, it's time to instruct your advisor to submit the formal mortgage application (FMA).
It's now that every piece of relevant documentation and information needs to be collated.
The financial documents required will depend on the lender and your business structure but typically include:
- personal bank statements
- business bank statements
- tax calculations and tax year overview docs
- credit report
- proof of ID and address
- business accounts (for limited companies)
Please note mortgage lenders won't accept a self-assessment tax return. Be sure to check out our mortgage documents checklist for a more info.
You'll also need to provide:
- Your solicitor's contact details
- The estate agent contact information (for the valuation)
- Certified proof of ID and your current address
- Your accountant's contact info (if requested by the lender)
The full mortgage application typically takes 4-6 weeks to be approved and a formal mortgage offer made, though it can take longer at busy times of the year.
Self-employed mortgage underwriting
Once the lender receives all the required documentation, the application is passed to the underwriting team. This is where your application is risk-assessed based on the lender's self-employed mortagage criteria, documents examined and searches run.
The lender will carry out a hard search of your credit record. Having a good credit score will give you access to the best mortgage rates so it's worth checking well in advance of applying for a mortgage.
In the UK, the four main credit reference agencies (CRA) are Experian, Equifax, Transunion, and Crediva. Most lenders will search just their preferred CRA.
The property valuation and mortgage offer
Assuming all the assessments and checks are satisfactory, the lender will then instruct a qualified surveyor to carry out a mortgage valuation (sometimes referred to as a valuation survey) of the purchase property.
The lender will usually provide a valuation survey date. Sometimes, it's just a few days away, but during busy periods, it can be 2-3 weeks later. It all depends on how busy the surveyor is.
With some mortgage products, the bank or building society will charge the borrower a valuation fee. Others come with a free valuation. Either way, it's important to remember the valuation is for the lender's benefit, not yours.
As the mortgage loan is secured against the property you're buying, it's understandable for the lender to want to check the property is worth the amount it's being purchased for.
They may also want to physically inspect the property to ensure there are no issues that could affect its suitability as security.
Automated and desktop valuations
Depending on the type of property being valued, and the size of the mortgage being applied for, a surveyor may carry out what's known as a desktop valuation. The surveyor will run computer checks of the property and similar nearby properties that have sold recently.
Sometimes, the lender will calculate the property value using an Automated Valuation Model (AVM). It's similar to the desktop valuation but automated with software that checks historical prices and other data.
As there is no physical inspection carried out with either the desktop valuation or AVM, the lender is taking on more risk.
For that reason, they tend to be reserved for mortgage applications with lower LTVs or properties on housing estates, where there are a large number of similar properties and sale transactions to compare against.
Physical valuations
Quite often, the lender instructs a qualified surveyor to visit and inspect the property. Surveyors typically produce a valuation report within a day or two of the booking date.
Once a satisfactory valuation has come in, your mortgage will be approved, and an offer document should arrive in the post within 2-3 working days. The lender will also send a copy to your solicitor and mortgage broker.
