What is a mortgage and how do you get one? This beginner's guide to mortgages explains everything you need to know about how mortgages work and how to mortgage a house successfully.

What is a mortgage?

A mortgage is a loan used to buy a property that's secured against the value of that property. It differs from other kinds of loan in three key ways:

It typically has a longer term

Traditionally, many mortgages run for 25 years. However, terms can be shorter or longer depending on a number of factors, including the size of your deposit (more on this later).

30, 35 and even 40‑year terms have become more common among first‑time buyers looking to reduce monthly payments, although a 25‑year term is still a typical benchmark in the UK. A longer term means smaller monthly repayments, which makes your mortgage more affordable. The flipside is that, the longer the term, the more interest you'll have to pay.

It's secured against the value of the property you've purchased

Mortgages are secured against the value of the property. If you're not able to keep up with your monthly repayments, your mortgage provider has the right to take away your property and sell it off. WARNING: Your home may be repossessed if you do not keep up repayments on your mortgage.

You cannot borrow the full purchase price

The vast majority of mortgages don't cover the full purchase price of your new home. You'll need to pay a portion - the deposit - out of your own pocket.

Many lenders offer mortgages starting from around a 5% deposit in some market conditions, but minimum deposit requirements can change and some borrowers or property types may need a larger deposit, such as 10% or more. However, size really does matter. The larger your deposit, the better you can expect the terms of your mortgage to be.

How does a mortgage work?

A mortgage works by allowing you to borrow money from a lender to purchase a property. You repay this loan in monthly instalments over an agreed period, typically 25 to 40 years, plus interest. The property you're buying serves as security for the loan.

Do you need a credit score to buy a house?

A good credit history can help, but there's no single score you need. When you apply, lenders may check information held by one or more credit reference agencies alongside your income, outgoings, deposit and other criteria. Each lender has its own assessment and credit scoring, so a score from a credit reference agency doesn't guarantee acceptance or a particular rate, and scores can vary between agencies and lenders.

What should I do before applying for a mortgage?

The extent of your options when getting a mortgage depends on your credit history, your financial situation and the size of your deposit. Most mortgage lenders have strict approval procedures, so it makes sense to be sure your finances are in order before you start enquiring.

Check your credit report

Mortgage lenders use your credit history to determine how likely you are to default on your debt. Your credit history is recorded in your credit report (and your credit scores are a quick way of seeing how your report might look to lenders).

If the information in your credit report suggests you've struggled to repay credit in the past, you may appear risky to lenders. So chances are you could be offered less favourable terms on your mortgage, or get turned down altogether. Conversely, a better credit history makes it likelier that you'll get accepted and get a good deal.

With this in mind, your first step should be to check your credit score and report before you start applying for a mortgage. If your score is less than stellar, you may be able to work on improving it by addressing issues in your credit report, though improvements cannot be guaranteed.

You can use ClearScore to check your credit scores and report for free.

Examine your spending

In the past, mortgage lenders used to calculate how much you could afford to borrow as a multiple of your annual salary. In the past, some lenders used simple income multiples (for example, around three times your annual salary, or slightly more for joint applications), but today they must base lending on detailed affordability assessments and may cap borrowing at around four to five times income depending on your circumstances and regulatory rules.

Following the 2008 financial crisis, the rules have become much stricter. Nowadays, lenders determine how much you can borrow by making an affordability assessment. In other words, they won't just look at your income, but also at your expenses. They'll also consider what might happen should your financial circumstances change in the future.

You should prepare for this by gathering documentary evidence of your monthly expenses, including utility bills, other loans and even your grocery spend and mobile phone contract. Try reducing your monthly spend as much as possible, for instance by switching energy provider.

Save up for a deposit

You should try to save up as much as possible for a deposit before you start approaching lenders.

The best deals typically require 25% or more. If this sounds unrealistic, consider looking into the government's Affordable home ownership schemes. Many banks also have savings plans to help you save up for a deposit.

Shopping around for a mortgage

Once you have an idea of your financial situation, it's time to start speaking to lenders. You have two options:

• talking to your bank

• using a mortgage broker

Talking to your bank

Your current bank often feels like the obvious choice, because you already have a relationship. Besides, most banks offer exclusive deals and discounts on mortgages if you're already a customer.

But while a loyalty discount might look advantageous on paper, you may be able to get a better deal elsewhere. Keep in mind that mortgage lenders are in competition with one another. it pays to compare offers before you make a decision.

Using a mortgage broker

The advantage of using a mortgage broker is that they'll shop around for you. A good mortgage broker will also explain your options and help you choose the best deal.

You can compare lenders directly, or you may wish to consider a mortgage broker - some offer advice from the whole market, while others work with select lenders. The broker should disclose this - as well as their fee structure - upfront.

How to get a mortgage step by step

Applying for a mortgage goes hand-in-hand with house-hunting. Here's how to get a mortgage step by step:

Stage one: fact-finding

You can do this at any stage of the home-buying process. However, it's a good idea to do it before you even start house-hunting. That way, you'll have a good idea of what your price range is before you get your heart set on a property.

At this stage, the lender will find out as much as possible about your needs and tell you how much they would be prepared to lend you. There's no obligation to take out the mortgage, so you can talk to several different lenders in order to find out who would offer you the best terms.

Approval in principle

Once you choose a specific lender, you can ask them for a decision in principle - a written statement declaring they'd be happy to lend you the amount you require.

An approval in principle is not a guarantee and does not commit the lender to provide a mortgage. However, it may make you more attractive to sellers as it shows initial assessment of your affordability, though the lender may still reject you after conducting more thorough checks.

Stage two: getting your mortgage

Stage two is the application proper; and entails a credit check and a detailed affordability assessment.

Your lender will also want to value the property you intend to purchase. The property will be checked for any issues and compared to similar ones. This is the lender's way of ensuring you're paying a suitable price for a property.

If everything is in order and the lender accepts your application, you'll be given a formal mortgage offer. This is normally binding on the lender, subject to the terms and conditions set out in the offer, and it may be affected by material changes in your circumstances or information before completion. It's worth reading the offer, its expiry date and its conditions carefully. However, you'll have a reflection period within which you can change your mind. You can waive this if you want to speed up your purchase.

Once you sign the offer, you're good to go. As soon as all sale formalities are complete and your lender receives the title deed, the funds will be released to the seller's solicitor and you'll get the keys to your new home.

Key highlights

• How much you can borrow will depend on an affordability assessment. Being in control of your spending improves your chances of getting approved.

• The bigger your deposit, the more affordable your mortgage will be.

• Shop around and compare offers before you commit to a mortgage.

• Before you apply for a mortgage, it's worth checking your credit score. While you can work on addressing issues in your credit report, credit score improvements cannot be guaranteed and depend on various factors.