Buying a home is always an exciting but potentially daunting, as well as stressful experience. The mortgage application process is always one of the most risk-prone stages of any home purchase. To give yourself the best chance of success, it’s important to ensure you’re prepared prior to make an application.
If you think you’re likely to be applying for a mortgage in the near future, what can you do to prepare?
Top Tips
Here are some of our top tips on how to best prepare for your mortgage application.
Get your paperwork organized
Firstly, make sure you have all the paperwork you’ll need to make an application. In practice, this will mean gathering payslips and employment information and your National Insurance number if you’re employed. Make sure you have a year’s worth of payslips at hand. If you’re self-employed, you will need an SA302 Tax Calculation from HMRC for at least the last two years and possibly certified accounts. Your Unique Tax Reference (UTR) will also be required.
Stay out of your overdraft
Lenders will take a close look at your spending habits. For at least a year ahead of any application, you should avoid using your overdraft. While the occasional lapse into your overdraft is likely to be overlooked, if you regularly dip into it at the end of the month, then it can reflect badly on your ability to manage your finances. Work out how much you’re spending and make sure that it’s a lower amount than you’re earning. If this means canceling gym memberships or streaming subscriptions, then that should be a priority. The lower your outgoings and the more orderly your finances, the more favorably lenders will view your application.
Pay off any debts
Before you make your application, pay off any outstanding debts that you can. Multiple debts to different creditors will impact your chances of securing a mortgage. Even if your application is successful, outstanding debts will lower the amount of money that you will be able to borrow.
Check your credit score
At least one year before you look to make an application, you should check your credit score. You can do this through organizations such as Equifax, Experian, and Clear Score. Most credit agencies will have a free service that gives you an overview of your current credit situation. For a small subscription, you will be able to access more detailed information. The higher your credit score, the greater the chance you will be offered a competitive mortgage.
It’s also important to check that there are no errors on your credit report.
How to save for a mortgage
The bigger your deposit, the more likely your application is to be successful. You will also be offered better mortgage deals. Saving for a mortgage can be challenging, but whether you’re a first-time buyer or looking to move, the more capital you can put into any property purchase, the better. How much you need to save for a mortgage will depend on your individual circumstances and the price of the property you want to buy.
Create and track your budget
Firstly, take a look at your current spending. Where is money being wasted, and how can you reduce your outgoings? This might mean changing to cheaper broadband or utility deals, canceling some luxury or discretionary spending temporarily, or looking at how you can earn more money. The greater the gap between your income and outgoings, the more you will be able to save.
Prioritize debt repayment
Before you begin saving, you should pay off any outstanding debts. This will not only improve your credit score and make you look more attractive to lenders, but it will also increase the amount you can borrow.
Automate deposits into your savings account
Set up regular payments into your savings account for an amount that you can sustain. If you’re looking to buy a house, you may wish to cut back for a period of time prior to the purchase. Any money you save from canceling subscriptions, cutting back on takeaways, or clothes shopping, should be redirected toward your savings account.
Utilize government schemes
The government has introduced a range of schemes to help people buy a home. These are particularly directed at first-time buyers. Help To Buy ISAs have been closed to new applicants, but people under 40 can open a Lifetime ISA. This lets you save up to £4,000 every tax year towards a first home or your retirement, with the state adding a 25% bonus on top of what you save.
How a mortgage broker can help
There are quality mortgage brokers who cover the whole of the UK that are available to help you with your whole mortgage application. They can search the whole of the market to find the most suitable mortgage for you based on your individual circumstances, and they can advise you every step of the way.
