If you are looking to buy a property it is important to understand what mortgage lenders will be looking for when assessing an application for a mortgage. Once you understand what lenders are looking for then you can get everything in order so that when you make your application you will be in a good position to obtain a mortgage.
This article provides 7 key actions you should take to increase the chances of getting a mortgage.
1. Save a larger deposit
The larger the deposit you can save the better are your chances of getting a mortgage as lenders try to limit the risk they are taking with each mortgage. By saving a larger deposit you will lower the loan to value ratio (LTV) of your required mortgage making more mortgage deals available to you. If you were to default on your mortgage payments, a mortgage provider has the power to repossess the property and so having a lower LTV means that they should be able to recover the full debt upon selling the property.
If you are looking to buy a property but struggling to save a deposit then read our article - How to buy a home with a low deposit
2. Check your credit rating
Every lender will assess your credit rating by using one of the credit rating agencies such as Experian or Equifax to enquire about your financial history. All loans and credit cards are registered with the agency together with loan amounts, late payments and defaults. Each credit rating agency will provide a rating so that the mortgage lender can assess your reliability as a borrower.
An individuals credit rating can be affected by any of the following:
- Payment history - just one missed payment on a bill or credit card can have a negative impact on your credit rating with credit rating agencies allocating up to 35% of the total score to this one area
- Credit usage - this looks at how much you are regularly spending on revolving credit such as with credit cards & store cards compared with your total credit limit, this provides the lender with an idea of how much a person relies on available credit for their regular spending
- Credit history length - this looks at how much credit a person has and how long they have had the different accounts, generally the longer your credit history the better
- Credit mix - having a diverse range of credit - mortgage, credit card, car loan etc. - managed well, can have a positive impact on your credit rating as it shows that you can manage a diverse portfolio of credit products
If you have checked your credit rating and you feel it could be improved the following article is worth reading - How to improve your credit score quickly
3. Pay off unsecured debts
If you have unsecured debts with sizeable monthly payments then it would be beneficial if you could pay off these debts prior to applying for a mortgage, this will reduce your regular outgoings and increase the amount of income available to service your new mortgage.
4. Don't apply for any new credit
As well as paying off any existing debt you should not apply for any new debt as this will be recorded on your credit file. Any new debt applied for will flag up to a prospective lender that you are stretching yourself financially. A new finance agreement for a car or credit to purchase furniture in your new home could count against you when applying for a mortgage.
5. Make sure you are on the electoral register
You may have moved home a few times in your life and, particularly if you are young, may not have bothered to register on the electoral register at each address. The electoral register is the register of everyone that will be entitled to vote in any forthcoming elections but is also resource checked by lenders as proof of residency. Proving residence at your current address is vital when applying for a mortgage so that the lender can be confident that all their checks are for the correct person at the correct address.
Registering on the electoral roll can be done online by clicking the link
6. Sever any financial links with an ex-partner
If you have been in a relationship with another person then any financial links with that person could affect your credit rating. A financial link could be a joint bank account, credit card or loan account where both parties are named on any documents. If you check your credit rating any financial links with another person should appear.
7. Make sure all income is provable
All lenders will check your income, and that of any joint applicant to make sure it is what you say it is. If you are self-employed or run your own business then this could prove more difficult if you have do not have complete and up to date accounts and records. If you are employed with overtime and bonuses as part of your salary package then these must be regular and, if possible, guaranteed.
Well ahead of applying for your mortgage get your paperwork together to ensure that everything is in order when you need to prove your income including:
- Payslips - if you receive an annual bonus then you should have the previous 12 months payslips to hand. If you have more than one job make sure you include the payslip for those jobs as well
- Bank statements - it would be advisable to have the last 12 months bank statements in case the lender requests to see them
- Accounts - if you are self-employed or run business then you will need to provide the last 3 years' accounts prepared and submitted to HMRC. If your business has not been operating for 3 years then the lender may accept 2 years' accounts and a projection of the 3rd year prepared by an accountant. If the business has been operating for less than 2 years then it may prove difficult to obtain a mortgage as new businesses are more likely to fail than those that have been operating for a reasonable period of time
What to do if you have bad credit
Improving your credit rating requires a number of steps taken over an extended period of time. These steps are explained clearly in our article - How to improve your credit score quickly
You could also consider using a company such as LOQBOX which will help to build your credit score. To learn more read our review - LOQBOX Review – Should you use it to improve your credit score?
Things that may prevent you from getting a mortgage
- You are overextending yourself financially - all lenders will apply affordability checks to ensure as best they can that you can make your mortgage payments every month. Affordability checks are more stringent if this is the first time you have had a mortgage as meeting the monthly repayments can be even more challenging if you have never had to budget before for such a large regular outgoing
- You have too much existing debt - lenders will not only look at your current outstanding debt but also how much debt you could have if you included all your untouched debt available, such as credit card limits and unused overdrafts
- Credit report discrepancies - something as small as an undisclosed mobile phone contract registered at a previous address or finance linked to a previous partner can adversely affect your credit rating. A lender will require a full explanation of any discrepancies together with evidence to prove your explanation
- Too many credit applications in a short period of time - all credit application searches will remain on your account for one year and the presence of too many recent searches can have an impact on your mortgage application
- Not on the electoral roll - as mentioned earlier in this article being on the electoral register is fundamental for a lender to prove who you are and where you live
- Too much change - lenders like stability such as regular employment, a stable address and prudent financial management. If you cannot prove these at the moment it may be worth delaying a property purchase until you can evidence more stability in your life
What do I need to get a mortgage?
Here is a list of the main items required to get a mortgage:
- mortgagable property
- provable and sufficient income
- clean credit history
- proof of the source of your deposit
- ID & proof of residency
If you are a first-time buyer it will be well worth reading our article - First time buyer guide – Everything you need to know about buying your first home
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