How Mortgage Applications Are Processed?
The movement of a mortgage application through a lenders processing centre can be a mystery to most people.
This article aims to unravel some of those mysteries. Each mortgage lender will have their own unique system but much of the processes will be the same.
How Mortgage Applications Are Processed?
For reasons of simplicity and speed the process is divided into key tasks which enable different teams to focus on specific parts of the process. Sub dividing the processing in this way enables everyone to become highly competent at his or her part in the process. This works on the same principle as a car plant conveyor belt system.
We will first spend time giving you an overview of the end-to-end process for setting up a mortgage and re-mortgage application. This will allow you to understand the different teams involved in the process and the tasks being performed on an application. Thereafter we will look at the detail undertaken by the different teams.
The process of setting up a mortgage can look quite complicated because of the number of people involved. This however, is not the case. Whilst there are a number of people involved the tasks being performed are relatively straightforward.
The process is essentially an elaborate checking and fetching process to confirm that the lender is prepared to lend customers money for either a mortgage or re mortgage.
This being the case the majority of work involved is:
- Reviewing the content of documentation
- Identifying gaps
- Chasing outstanding documentation
- Instructing third parties to provide additional information
Beyond the checking and fetching process the operation also has an informing role to play. At times the Mortgage Broker or you (the customer) will look for progress updates and may call the lender. On other occasions the lender may need to call the Broker or customer to let them know the outcome of decisions.
The process starts with the receipt of a mortgage or re-mortgage application and supporting paperwork. The lender creates a file to hold the paperwork and insert a logging checklist at the front of the file. They check the quality of the application and the available paperwork.
The biggest hold up for most mortgage cases is missing information. It is much better if you can answer all the questions on the application form and make sure all the relevant documentation is submitted.
With the file they will then need to check to see what supporting documentation has been received with the application. Documentation that will be required here includes:
- Evidence of earnings
- Evidence of identity e.g. passport
- Evidence of address
- Current Bank statements (not all lenders require these)
- An employer's reference may or may not be requested
Evidence of earnings
The evidence of earnings for an employed person and a self-employed person will differ. The overall degree to which the business goes to secure evidence of earnings will also differ dependent on the Loan to Value.
The case details are then in most cases entered onto a computer. This allows more than one department to look at the file simultaneously. More and more lenders are allowing Mortgage brokers to log applications online this does speed up the process, if inputted accurately.
A typical Mortgage application form will ask for the following:
- Customer's name and address
- Date of Birth
- Property value, type of property etc
- Loan purpose - re-mortgage, mortgage or equity release
- Amount and term of loan
- Basic employment details including salary
- Banker's name
- Employment (including full name & address of employer)
- Business details if the customer is self employed,(S/Emp)
- If S/Emp, type of business, turnover etc
- Bankers address, sort code and account number
- Details of all personal loans or credit cards
- Current mortgage details (If you have one)
- Details of the property to be mortgaged
- Is it freehold or leasehold, business use etc
- Solicitors details
- Repayment method for the mortgage
- Direct debit mandate
- Declaration
As you can see there is quite a lot of information needed from you the customer to enable the lender to consider you for a mortgage.
Checking the Application
Certain information is vital in processing the customer's application. They would hope that the majority of applications are fully and accurately completed, but obviously they will receive some that are not. If any information is missing, they will contact the customer to obtain the missing data.
The data on the application form is of prime importance, however without a signature on the declaration page, they are unable to process the application at all.
The declaration page gives the lender authority to make the necessary enquiries with:
- Credit reference agencies,
- Fraud prevention agencies,
- The customer's employer
Below is a list of common mistakes that hold a case up:
- Missing data
- Illegible data (Poor handwriting)
- Unsigned application form
The completed file can now be passed to the Underwriting team for an initial underwrite. Some lenders will not do this until all outstanding information has been received as it cuts down the need for the same person to look at a case more than once.
Brokers will very often discuss a case with the underwriter over the phone prior to submission for an initial decision. Any decision given though at this early stage is only a decision "in principle".
Not until all the checks have been undertaken and the property valued will a formal mortgage offer be made.
Underwriters
The Underwriters will after the initial underwrite give one of 3 possible decisions. The decision will either be yes, no or maybe. Yes or no speak for themselves, a maybe is most likely because the underwriter is not in possession of all the documentation he needs. Still waiting for bank statements, pay slips accounts etc.
A no is usually due to affordability, bad credit history, etc. Again these people can be helped but a lender with a more liberal attitude to bad credit will have to be found. See the bad credit page of this site for more details.
Customers have to remember that they can "tell" a lender that they earn this or that amount; they live at this or that address and so on. But the lender will want documentary evidence. A simple rule is "no show, no dough"
There are exceptions but "self certification" or "fast track" mortgages are dealt with on other pages on this site.
Property Valuation.
The underwriter checks the customer is a good risk to repay the loan. The other thing that needs checking is the property that will be used as security for the loan. See "Valuations" page.
Once the valuation comes back as satisfactory the formal mortgage offer can be made. (The valuation is not always satisfactory. Known as a "down valuation" for further info see "Valuation Problems")
You the customer will then receive the formal mortgage offer in writing. This needs to be checked carefully then signed and returned when you are happy with it. See "Solicitors Process" page.
Once the signed mortgage offer has been sent back the only thing that remains is for a completion date to be set. This is done in conjunction with the lenders solicitor your solicitor and your mortgage broker.
So how long does the process take end to end? How long is a piece of string? It has so many variables and the lender is reliant on 3 rd parties.
Such as surveyors, solicitors, employers and you the customer to give them what they want when they want it. In reality if a "clean" fully completed application comes in, and the surveyor gets a move on then a mortgage offer should be out to the client inside 10 working days.
Some lenders will promise the earth to get your business but be guided by your broker if you have one.
They submit mortgage applications on a regular basis and therefore they should know which lenders have slick service in place for the processing of new applications.
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