If you need a mortgage be prepared before you apply
How to ensure you have the best chance of getting the best deal
Get your finances in order first!
Before you even think about applying for a mortgage, make sure that you terminate everything that you don’t need.
Do not renew your mobile phone contract
Cancel Gym membership
Do not order take-aways on your card
Ensure there is no evidence of wining and dining or anything to indicate that you spend anything unnecessarily
Do not book any holidays
It would be even better if you had no car finance either, if that means driving around in something cheaper for a few months, then so be it.
You need to ensure that you have AT LEAST 3 months with only essential spending on your statements.
Why is this?
Lenders are obliged to conduct an affordability check before approving a mortgage, something that is a relic of the financial crisis of 2008. In order to maximise your borrowing potential and get the best rate possible, you need to provide at least 3 month’s bank statements to any potential lender. Even if you were spending more previously, by demonstrating that you have changed your living habits, with your statements, they will more than likely accept your new and higher disposable income.
If you are buying with your partner, prepare for any affordability interview beforehand, as they may try to establish your lifestyle in many different ways, so be prepared.
Get your paperwork organised
Lenders will need to see proof of income and identification before they can offer you a mortgage, so it makes sense to get your paperwork together in advance. Sending everything in one batch can help speed up the process as the lender should have all the information they need to hand.
Many lenders won’t accept internet bank statements printed out at home, so you may need your bank to send you original copies. It’s worth asking for these a few weeks in advance in case you need to wait for them to arrive.
Your lender may want to see any or all of:
• Your last three months’ bank statements
• Your last three months’ payslips
• Proof of bonuses/commission
• Your latest P60 tax form, showing income and tax paid
• Your last three years’ accounts or tax returns (if self-employed)
• Proof of deposit (e.g. latest 3 months’ savings account statements)
• ID documents (usually a passport or driving licence)
• Proof of address (e.g. utility bills or credit card bills)
• A gift letter; If you’re receiving help with your deposit, the lender will need a letter from the person providing the gift explaining that they won’t part own the home and that it’s not a loan.
Register on the electoral roll
This is the quickest and easiest part of preparing for a mortgage application. Being on the electoral roll at your current address is important because lenders often use the electoral roll data to help identify you, and being on the electoral roll will also help your credit score.
If you’re not currently registered you can join here.
Stay out of your overdraft
If you’re constantly in your overdraft this can be a worry for lenders. In fact, some lenders may not accept you if you’ve been in your overdraft at all in the last three months.
Don’t apply for credit shortly before making a mortgage application
Try to avoid applying for credit in the three months before getting a mortgage – it could impact your credit score, and taking out new loans or increasing your credit card balances is likely to reduce the amount you can borrow. Some recommend at least a six-month gap, to be absolutely safe.
If you need to apply for credit, it’s unlikely that one application will hurt all that much, as long as it’s affordable. But if it’s a payday loan, some lenders will decline you for a mortgage if you’ve had one in the past year.
It’s also strongly advised not to take out any new credit between your mortgage offer being issued and completing on your new home. If you do so you will need to inform the lender, which could result in them changing the amount they’re prepared to lend you.
Manage your payments and spending
If you have an existing credit card or loan, it’s important you keep up with the minimum repayments and try not to get too close to your credit limit. Missed or defaulted payments, County Court Judgements (CCJs), payday loans, and clear betting patterns on your bank statements can all lower your chances of getting a mortgage. If the current climate means you’re struggling with repayments, speak to your lender about a payment holiday. This shouldn’t affect your credit score as long as you agree it with them up front.
It’s always worth adding to your savings if you can, even while you’re still looking for a property. It’s important to keep any savings in your own accounts and not to give them to friends and family for safe keeping.
Don’t forget, there could be other fees to consider when buying a new home, such as Stamp Duty and solicitors’ fees. Remember to take these into account when working out your overall budget.
Check your credit report before you apply
Lenders want to see that you’re able to manage your finances before they decide to offer you a mortgage. One way they do this is by checking your credit file to see if you have a good payment history.
Your credit file lists your current and previous credit cards, loans, overdrafts, mortgages, mobile phone and now some utility payments, going back over the last six years. There are three main credit reference agencies in the UK, and several companies offer ways for you to see your report and score for free. The three main agencies are
Experian – You can sign up for a 30 day free trial with them here
Equifax – Clearscore offer free access to your Equifax credit report – you can sign up here
TransUnion – TotallyMoney offer free access to your TransUnion credit report – you can sign up here
If you think your credit file information is wrong, you can raise a dispute to get it corrected. In the first instance try contacting the company that registered the error on your credit file, although some of the services above do offer the facility to query entries too.
People who are financially linked to you could affect your credit score
You can become financially linked, or associated, with someone if you take out or apply for joint credit, such as a bank account, mortgage or loan. Because there is a link, lenders will consider the other person’s credit history when you apply for your new mortgage, so any missed payments or defaults they have could impact your chances of being approved.
If you’re now separated or no longer have a relationship with them, make sure you’ve closed or had your name removed from any joints accounts so you’re not linked to them financially going forward.
It’s also worth writing to the credit agencies and asking for a notice of ‘disassociation’.
Once you’ve got all of that in place you’re ready to get started!