Buying your first home is a big step. Whether you are going it alone or buying with someone else, there are plenty of things to consider before starting the process of applying for a mortgage.
One of the most important is making sure your finances are in good shape before you visit your mortgage broker. Lenders are looking for reliable and careful borrowers, so you will need to have lots of information ready to show you are able to manage your money. If you do have any concerns about your credit history, such as missed or late payments on a loan from the past, it’s important to be open with your broker from the beginning so that they have all the information they need.
Credit check
Before anyone will lend you money, they are likely to check your credit history to see if you have been responsible with your finances in the past. They do this by asking credit reference companies for your information. It will show if you have any outstanding loans or debt. You can apply to see your credit history through one of these companies and it can be useful for you to do this before you start your mortgage application, so you know what others might see.
Some simple steps may be worth taking at this point, like avoiding taking out any loans and making all your credit payments in the six months before you want to buy. If you have any old accounts with someone else that are not being used, it is worth closing them, just in case your association with that person could negatively impact your details. Companies will also check to see if you are on the electoral register as proof of your current address, so make sure those records are up to date too.
Incidentally, if you have been declined for a mortgage in the past, that doesn’t mean you won’t be able to get one now. It’s always worth speaking to a good broker who can advise you.
Monthly spending
Lenders will want to know how much you pay out each month, what you are spending on and why. They will be looking to see whether you have enough to cover your bills and may want quite a lot of detail from you on things like how many dependents you have, what you pay for your phone, satellite television or car. Make sure you can find bank statements and other paperwork for at least the last six months that can prove you are keeping up with your payments.
Proof of income
Whether you employed or self-employed, you will need to show how much you bring in each month. Gather together your latest three months worth of payslips (or eight if you’re paid weekly) and your last P60 if you are employed.
If you are self-employed, you may need three years of accounts or tax returns and 6 months of personal or business accounts. It is a good idea not to change jobs too close to when you want to apply for a mortgage as lenders may see you as more of a risk.
Calculate what you can afford
Do your own sums before you see the mortgage broker and work out what kind of a deposit you think you can comfortably manage. The more you can save the better. Some lenders withdrew 90 per cent mortgages in 2020 but they have been reintroduced gradually this year. If you can save 15-20 per cent of the purchase price this will stand you in good stead. If not, there are some 90 per cent mortgages available. Think also about the other costs you need to allow for when buying a house, like paying for a survey, solicitor’s fees, removals, buildings insurance and fees for arranging the mortgage. Stamp duty may apply in some cases and you might also want to set aside money for furnishing and decorating.
Once you have everything in order, you are ready to see your mortgage broker. Feel free to get in touch with us for advice and support. We’re here to help.
This article was first written in 2018 and updated in 2021.