Our Top 10 tips for successful mortgage applications.
Buying a house is one of the most stressful events in many people’s lives. From finding your dream home to finally moving in, the path is full of potential pitfalls.
Here are our top ten tips for a successful mortgage applications that can make your journey into homeownership a little less stressful.
Before we start, though, here’s some background about how to secure a mortgage offer from a lender.
How to secure a mortgage offer
When you apply for a mortgage, the lender wants to know that you’ll be able to keep up with regular payments. They’ll do this by checking out two areas:
- That you’re earning enough money to repay the loan. Lenders will want to have evidence of your earnings, as well as your current financial commitments, including any existing loans you’re repaying. Usually, you’ll be able to borrow up to 4.5 times your annual earnings in order to buy your new home. If you have an existing loan or debt – for example, a student loan – this will reduce the amount you’ll be able to borrow.
- That you have a good credit history. Lenders will look at your credit history to see whether you have a history of defaulting on payments. If you’ve missed a previous repayment or defaulted on a loan in the past, there will be a red flag on your credit history.
“Unsurprisingly, people who had experienced credit problems in the last three years were particularly concerned when applying for a mortgage,” said Jill Rickson, Principal Mortgage Adviser at Independent Financial Advisers and mortgage specialists, Pembroke Financial Services of Shoreham. “About 70% of them were concerned that their credit history could affect their application. Even if you’ve maintained a credit record, it can be a worrying process.”
If your mortgage application is rejected, this might not just affect your short-term homeownership plans. It could have an impact on any future mortgage applications as well.
This is because when a lender searches your credit history, any previous applications for a loan will be marked on your credit report. This mark means that other potential lenders will know that you have either tried to get a loan recently or have had an application rejected. Some lenders might reject an application because of this.
As a rejected application can have longer-term consequences, it’s important that you maximise the possibility of your first application being successful. “By understanding what lenders are looking for and taking steps to reduce any red flags,” Jill Rickson continues, “you can give your application a real confidence boost.”
Here are Jill’s top ten tips for a successful mortgage applications to give you a better chance:
- Save an appropriate deposit. Before you make an offer on your dream home, you need to have enough money saved as a deposit. If you’re a first-time buyer, you’ll need at least 5% of the property’s value saved as a deposit, with some lenders requiring 10%. The bigger deposit you have, the easier it will be to get a mortgage, because your loan to value ratio will be lower. Have a look at the value of properties in the areas where you’d like to live so you can work out how much money you need to save as a deposit.
- Ask for a realistic amount. Asking for a loan that is more than 4.5 times your annual earnings isn’t realistic and, consequently, it’s likely your application will be turned down. Being realistic doesn’t just apply to the amount your lender will give you. It’s also about being realistic over whether you’ll be able to make the loan repayments, month on month.
- Check your credit report. Ideally, you should check your credit report a few months before you apply for a mortgage as this will show up any red flags on your history. You’ve then got the time to resolve or minimise them. A negative rating on your credit report isn’t all bad news, but it might mean you need to consider different lenders or reduce the amount you’re asking to borrow.
- Improve your credit score. When lenders look at your credit report, the first thing they look for is the overall score. It provides a headline figure and informs whether they’ll look any deeper into your credit history. You can take a number of steps to improve your headline score by, for example, registering on the electoral roll, closing any bank accounts you’re no longer using and updating any inaccurate information on the report. Other steps can take a little longer to affect your credit score. To find out your current credit score, each of the three main credit report agencies (Equifax, Experian and TransUnion) offer free access.
- Reduce your debt. Reducing the amount that you owe on any outstanding debts before you apply for a mortgage will help you in two ways. First, your overall outgoings will be lower, so you’ll be able to apply for a larger loan, as your loan to value ratio will be lower. Secondly, repaying debt demonstrates to any potential lender that you’re able to meet your financial commitments.
- Pay attention to the money your spending. When you apply for a mortgage, lenders will typically ask you to supply copies of your most recent bank statements, usually for the last three months. This helps them assess your outgoings and your spending habits. By carefully managing what you spend your money on during this time, you can impress lenders with your financial skills. Also be aware that lenders will be looking for any potential red flags when they look at your statements, for example, payments to gambling companies or the use of payday loans.
- Choose your potential new home with care. Any potential lender will look at the property you want to buy. They want to know that it’s worth the amount of money you’ve offered to pay for it and that, if you default on your payments, they’ll be able to sell it. Avoid choosing unusual properties or those that need a lot of money spent on them. If you really want to buy a home that is unusual or needs a lot of work, then do some research into specialist lenders or ask a mortgage broker to help you out.
- Get your paperwork in order. Lenders will want to see numerous documents before they approve your mortgage application. You’ll normally need to give them documents that confirm your identity and address, along with at least three months of payslips and bank statements. If you’re self-employed, you’ll need copies of your financial accounts, often for the previous two years. By getting all of this paperwork in order before you apply it will not only speed up your application, it can also give you the chance to spot any mistakes that might affect their decision.
- Choose the right lender. There are numerous mortgage lenders to choose from, each of whom uses their own criteria. Some cater for people who are self-employed, others for people with poor credit histories. Working out which one to choose can be time consuming and difficult, and this is why many people use a mortgage broker. They can help you choose a lender suited to your circumstances. And remember, just because one lender turns you down, it doesn’t mean they all will.
- Use a mortgage broker. A mortgage broker won’t just help you choose the right mortgage, with the most competitive interest rates. They can also help you with the application, ensuring you’ve got all the information you need before you apply. Using a mortgage broker might involve paying a fee, but in the long term it’ll be worth it because of the lower interest rates they can secure for you.
We can help you through this process. For expert mortgage advice call us 01273 774855 or email us by clicking here.
Your home may be repossessed if you do not keep up repayments on your mortgage.