So, the time has come for you to consider a mortgage. Perhaps it’s for your first home if you are looking to get your feet on the property ladder. Or maybe you’re looking to sell your current home and move into a new one. It might even be that you’re looking to remortgage, especially if the deal on your current mortgage loan is ending soon.
Whatever the case is for you, preparation is key. You need to get yourself mortgage-ready, by which we mean, in a good enough position to secure a great mortgage.
Before you apply for a mortgage, consider the steps below. You stand a better chance of a successful application if you adhere to the following as your mortgage lender will look more favourably upon you. Have a read and then get in touch with our team for further mortgage advice.
Check Your Bank Statements
At the outset, you need to make sure you’re able to afford a mortgage. You can do this by checking your bank statements and calculating your income and expenditure.
Your mortgage lender will do the same, as they will want to make sure you can afford the downpayment, the closing costs, and your future monthly mortgage payments.
If the lender sees any red flag issues on your bank statements, your chances of getting a mortgage may be compromised. Such issues can include:
- Evidence of bounced cheques
- Income gained via payday loans
- More expenditure than income
- Unexplained cash deposits in your bank accounts
- Being overdrawn regularly
Lenders will typically ask for 2-3 months of bank statements. Therefore, it’s in your best interests to work on your finances to prove to the lender that you’re reliable.
If your recent bank statements show any red flag issues, you should do what you can to resolve these before you apply for a mortgage. So, you might need to make a concerted effort to pay off any outstanding debts you owe, for example, such as a payday loan or any student loans you are still beholden to. You might also need to cut back on any unnecessary spending.
If you see any inaccuracies on your bank statement, you should get in touch with your bank to resolve these, as some mistakes could affect your mortgage application.
When your monthly budget is in order and your bank account reflects this, you will have more peace of mind when showing the lender your bank statements. When they see less evidence of debt and other instances of financial uncertainty, the greater the chances of a successful application.
Check Your Credit Score
Bank statements aren’t the only things mortgage lenders look at when assessing a mortgage application. They will also check your credit file to see if you have a good payment history. Your credit report will list details of previous and existing credit cards, loans, mortgages, overdrafts, utility payments, mobile phone payments, and more. The information will date back over six years and you can access it by signing up to one of the three main credit reference agencies. These are:
When you gain access to your credit file through any of these sources, you will also gain access to your current credit score. As far as your mortgage lenders are concerned, the higher your score the better, so you should take steps to improve your rating if it is particularly low.
Confusingly, credit reference agencies use different scoring systems. But to give you some understanding, consider the information below.
- 0-560 (very poor)
- 561-720 (poor)
- 721-880 (fair)
- 881-960 (good)
- 961-999 (excellent)
- 0-279 (very poor)
- 280-379 (poor)
- 380-419 (fair)
- 420-465 (good)
- 460-700 (excellent)
- 0-550 (very poor)
- 561-565 (poor)
- 566-603 (fair)
- 604-627 (good)
- 628-710 (excellent)
Your credit score can change over time, so even if your score is particularly poor, you can still take steps to improve it.
What can affect my credit rating?
There are a number of factors that can affect your score. These affect your score positively and negatively so it’s worth considering each of them.
- Making your payments on time
- The use of direct debits
- Staying within credit limits
- Keeping old, well-managed accounts
- Missed or late payments
- Being too close to your credit limit
- County court judgements made against you
- Little or no credit history
- Applying for credit too often
It might be that your score is very good but if you are in a relationship and applying for a joint mortgage, the mortgage lenders you approach will also check your partner’s credit history. If they have a history of defaulting on loans or missed payments, that could impact your chances of being approved. Therefore, it is sometimes advisable to withhold your mortgage application until you have both had the opportunity to improve your respective credit scores.
How can I improve my credit score?
All hope isn’t lost if your score is low as there are things you can do to improve matters. The following steps can be advised.
- Pay your credit card bills on time
- Pay your utility bills on time
- Only use around 30% of your available credit limit
- Make sure you are listed on electoral roll data
- Don’t make too many credit applications in a short space of time
- Close any inactive credit accounts
You should also check your credit report for any mistakes. If you think there is incorrect information, check to see if the other credit agencies hold the same details. If they do, contact the lender responsible for the error on your report or write to the credit agencies to explain your dispute. You also have the right to use the Financial Ombudsman Service if you suspect a lender has made a mistake or if you think your credit score has been affected by identity fraud.
Will a bad credit history affect my mortgage application?
In short, yes, although this doesn’t mean you won’t be able to get a mortgage. Some mortgage lenders will still offer you a mortgage but you will likely be ruled out of the best deals on the mortgage market. To improve your chances of a better deal and lower mortgage payments, you should do as we have said already, and work on improving your rating.
As we suggested earlier, you should also get your bank account in shape as a problematic bank statement could affect your chances of securing one of the better mortgage loans.
If you take these steps before you apply for a mortgage, you will increase the chances of a successful application.
For more advice, get in touch with our mortgage team. While we will advise you to improve your credit rating, we can work with you to find the best mortgage deal for your situation, even if you have a poor credit history.
Start Saving For Your Mortgage Deposit
The deposit is usually 5% of the cost of the property so you should start saving before you make your mortgage application.
The more money you can put down as a deposit the better, as you may secure a better mortgage offer with a better loan to value. You will also reduce your monthly payments.
Things you can do to help you save for a deposit
- Reduce your household bills, perhaps by moving to cheaper tariffs
- Cancel unused subscriptions
- Cut down on your everyday spending
- If renting, consider moving into cheaper accommodation
By taking these steps, you will be able to save more money each month for the down payment. Put that money into any savings account that has a good rate of interest.
You should also make more money if you can. Now is the time to ask your boss for a raise if you think you are owed one. You could also make money on the side, perhaps with a part-time job or a side hustle. If there is anything you own that you no longer need, sell them if they are of good quality. When you have made more money, you should put this into your savings account too.
At some point, you should have enough money for your down payment. However, if you are still short of what you need, consider asking friends or family members for financial support, as this is better than getting into more debt before taking out your home loan.
Compare Mortgage Lenders
After doing what you can to get your finances in order, the search for a mortgage lender can now begin in earnest. You have two choices.
For one, you could begin the search for a lender yourself. There will be a lot of legwork involved (or a lot of time spent on the internet if searching for a mortgage online), so be prepared to put the work in when looking for a lender. Arrange meetings with them so you can find out more and then weigh up your options after broadening your search.
Alternatively, save yourself a lot of time and effort by using our services. We will do all of the legwork for you by gathering quotes from those lenders that closely match your needs. With access to 14,000 mortgage deals from over 90 different lenders (including those you won’t find on your high street), we will compare and contrast them to secure you the best deal possible. As we can also cut through the jargon that many lenders use, a mortgage adviser can make your life easier by explaining everything you need to know about the mortgage deals available to you.
Going beyond your search for a lender, we will also take all the hassle out of the paperwork when applying for a mortgage. Your designated mortgage advisor will get on top of this for you, so you have one less thing to worry about during the preparation stage of your mortgage journey. As we are also FEE-FREE, we can guarantee that not only will you save time with the application but you will save money too! Talk to us today to learn more.
Organise Your Paperwork
When applying for a mortgage, lenders will ask to see proof of income and identification. Therefore, it makes sense to get everything you need together in good time, as this will speed up the process when you eventually decide on a mortgage lender.
Your lender may want to see some or all of the following paperwork.
- Your last 3 months’ bank statements – how to download bank statements online
- Your last 3 months’ payslips (or the equivalent if self-employed)
- Proof of bonuses/commission
- Your latest P60 tax form
- 3 years’ accounts or tax returns (if self-employed)
- Proof you can pay the deposit (such as the last 3 months’ savings account statements)
- ID documents (such as your passport or driving licence)
- Proof of your address (such as a utility bill or credit card statement)
- A gift letter if you are receiving help with the deposit
When asked to provide bank statements and other documents, most mortgage lenders will ask for original copies rather than anything you have printed out at home. Bear this in mind when you’re getting everything together as you may need to chase people up to get the original documents you need. If in doubt, speak to us if you are using our services or contact your mortgage lender directly.
Get A Mortgage Decision In Principle
Once you have found a mortgage deal that suits you, it’s a good idea to get a mortgage decision in principle before making a formal application. This is something the lender will give you to show that they are willing to give you a mortgage, subject to any final checks that need to be made. It’s worth asking for this, as you can use it to prove to the real estate agent that you are a credible buyer. They generally only last for six months, however, so if your search for a property takes longer than planned, you will need to get a new decision in principle.
Speak to a member of our team to learn more.
Start Your Mortgage Application
After getting your financial house in order and saving enough money for the down payment, you will have the opportunity to make an offer on the property you are interested in. When this has been accepted, you will finally be able to make the mortgage application. If you are using our services, we will arrange this for you.
Your journey won’t be over at this stage as you will need to wait for your lender’s approval. This can take between 24 hours and a few weeks, depending on the complexity of your application. However, if you have gone through the various steps we have discussed, your chances of a successful application should be high.
To learn more, get in touch with our team today, and we will give you all the help and advice you need when preparing for your mortgage.