Applying for a mortgage can seem like a daunting task but being prepared and knowing what you need to do in order to increase your chances of getting approved can take the stress out of it.
If you are thinking of applying for a mortgage, plan ahead and give yourself some time to save, clear debts and get all of your paperwork ready for a potential lender to look at. A lender will typically take the following into consideration when you apply for a mortgage:
The size of the loan you require
How much you’ve saved towards a deposit on the property you desire
Your employment status and income (yes, you can usually get a mortgage if you are self-employed)
Your credit rating
Any existing loans or debts
They will check your credit rating to see what past credit cards, loans, overdrafts and other borrowing facilities you may have had over the last few years.
Here are some things you can do to increase your chances of getting the loan you want…
Save, save, save
The higher your deposit, the more competitive the interest rate will be on your mortgage.
Know your credit score
Mortgage lenders will perform a credit check when you apply for a mortgage, and a good credit score will increase your chances of being eligible for the most competitive mortgage deal. Making payments on time will keep your credit score healthy, whereas missing payments on credit commitments could damage it. Credit referencing agencies, such as Experian or Equifax, will allow you to view your credit report – which is what mortgage lenders see when they perform a credit search – and they may also provide you with a ‘score,’ however please bear in mind that is only an indicative guide as each individual lender will credit score slightly differently. Check your credit report in advance to avoid any unwanted surprises.
Be aware of what you owe on any loans
A potential lender will look at what you owe so be sure to clear as much of your debt as you can. Contrary to what you might think, you don’t necessarily need to pay off any loans, but make sure you obtain up to date information on the balances of existing loans and credit cards and be prepared to pay them if need be.
Close any old accounts
If you are not using an old account, close it down as it could be a fraud risk which could affect your chances of getting a mortgage.
Make sure you are on the electoral register
This is often used to verify your identity, so make sure you are on the electoral register with your current address. Contact your local authority to update your details if you have moved since you first appeared on the register.
Have all of your paperwork ready
Make sure you have personal documents to hand that verify who you are – have an up to date passport and driving licence – ensure they both show your current address. You will also need to have a recent letter from a utility company to verify your address. ‘My big tip for anyone who is thinking of applying for a mortgage is to be prepared,’ says MBA’s Senior Mortgage Adviser Phil Leivesley. ‘Gather together the evidence of your income, get accurate and up to date details of all credit commitments – even the zero per cent loan you took out to buy the sofa – and check your credit report to make sure there aren’t any records that could cause you a problem.’
Check your partner’s credit rating
If you are applying for a mortgage with someone else, make sure they have a good credit rating, and if they don’t, see what you can both do to rectify the situation. If they have defaulted on a loan in the past, this may affect your ability to get a mortgage. However, if they previously had a county court judgement against them or a debt collection agency pursuing them, but they have since cleared off a loan in full, then they can apply for a Certificate of Satisfaction. This is a document filed in the public records which shows that the amount has been paid off in full. To apply, you will need to complete an N443 form.
Don’t apply for any credit too close to seeking a mortgage
Try to avoid applying for a loan or any other form of finance six months before applying for a mortgage. Lenders search your credit file each time you apply for a loan, credit card or an overdraft. The lower your monthly outgoings the better.
Curb your spending in the last three months at least
You will be asked about your monthly outgoings and the less you spend and owe the better. Some lenders will ask to see bank statements – possibly up to three months.
Try to avoid going overdrawn
Even if you have an approved overdraft facility, try to avoid using it as it demonstrates that you may be living beyond your means on occasions. Avoid going overdrawn in the three months before you apply for a mortgage.
Think about the type of mortgage to suit you
A good mortgage broker can advise you on the best type of mortgage to suit your personal situation, but you may want to think ahead and have an idea of what you want. If you are the kind of person who is risk averse and you like to know what you are spending each month, then a fixed rate mortgage may offer you valuable peace of mind. This is where the interest rate on a mortgage is fixed for two to five years (in some cases even ten years) and the rate stays the same regardless of whether interest rates change during this time. A variable rate mortgage means that your payments will fluctuate in line with changes to interest rates – which means it can work either for or against you, depending on whether rates go up or down.
Seek advice from a reputable broker
We strongly advise you speak to a mortgage broker who can offer you advice on the best type of mortgage deal to suit you and your personal situation. Lending is far more complex these days – there are a wide range of lending options on offer and interest rates are currently low. It is cheap to borrow, and this is likely to continue for the foreseeable future. A good broker who takes the time to find out as much as they can about your current situation will be best placed to access the most competitive mortgage rates on your behalf.
Again, this means you having all the information needed at your fingertips. Phil says: ‘By being prepared to give your broker all of the details they will need up front, this will help to make sure you don’t have any nasty surprises later down the line.’