Mortgage Dos and Don’ts

Buying a home, especially your first home, is arguably one of the biggest steps in your life. The aspects and terminology involved when buying a home can be quite confusing. To ensure you make all the right decisions when buying or refinancing a home you need to be prepared from the very start. Here’s a number of factors you should consider.

Key takeaways:

  • Planning to get a new mortgage? You need an accurate credit report, so review your credit report and correct anything that is not accurate.
  • Improving your credit score by paying down debt and trying to not use your credit card as much will help you get a better mortgage rate.
  • To help ensure that lenders will trust you to be able to pay back your monthly payments for your mortgage you can reduce your debt-to-income ratio.
  • Instead of spending the maximum amount you qualify for you should plan on spending what you can reasonably afford, such as 30% of your take-home pay.
  • Don’t assume that in the future you will be able to refinance and get a better rate as rates can drift higher during the year.

What can Influence Mortgage Rates?

There are a lot of different factors that affect the mortgage rate you receive such as; the economic environment, inflation, credit score, budget, job status, debts, deposit size and proof of income.

Credit Score Matters

Before applying for your mortgage, make sure you have an up-to date copy of your credit score, you can get a copy of your credit score from a credit referencing agency like Experian or Clearscore. This will show you what lenders will see when they review your application. If you think you need to improve your credit score then you should work on this before applying for a mortgage, you can do things like enrol onto the electoral roll and close down credit card accounts you no longer use. Find out more here

Budget

What is your budget? You need to work this out before applying for a mortgage. Ask yourself if you are sure you can borrow enough to cover the purchase of your property and that you will have enough spare to cover all the costs and fees associated.

The amount you are paying back each month will depend on how much you borrow, over how long and the interest rate.

Job Situation

Normally most lenders will want to see you have been with your employer for a decent length of time before they offer you a mortgage, so if your are thinking of switching jobs it may be hanging on until you’ve got your mortgage in place first. If you are employed it’s a good idea to be in your job for at least 3-6 months before applying for a mortgage.

The more you save up as a deposit, the more options you will have for your mortgage, as more deals will be made available to you.

Debts

If you’re submitting a mortgage application, the last thing any prospective lender is going to want to see is that you owe a load of cash on credit cards or you’ve got outstanding loans.

The last thing a lender is going to want to see is that you already owe out a load of cash on credit cards. So before you apply for a mortgage try to reduce any debts you currently have. This will help demonstrate to the lenders that you are able to keep up with payments and in turn will mean your mortgage is most likely to succeed. Reducing your debts can also potentially enable you to borrow more money when the lenders calculate your affordability.

Proof of Income

Lenders will need to see proof of how much you earn, a P60 form which you get every year from your employer should be provided to show a summary of how much you get paid and how much tax you pay.

You will probably also be asked to provide three months’ worth of bank statements and payslips, this is so the lender can see how much you spend each month compared to how much you earn.

Self Employed

Getting a mortgage when your self employed is more tricky, lenders will want proof that you are able to keep up repayments so they usually ask to see an SA302 form which will show your last three years from HMRC or your full accounts for the last three years.

If you cannot provide these it’s not very likely you will be accepted for a mortgage.

Deposit Size

The more you can save up for your deposit the less money you will have to borrow to purchase your house, you will receive the best rates when putting down a hefty deposit, so you will also benefit from lower monthly payments.

Buying with Somebody else?

If you are struggling to build up a decent size deposit on your own then it may be worth applying for a mortgage with somebody else, like a partner. They can help build up a deposit with you and they can also help you get a better deal. They could have a better credit score than you and/or be on a higher wage than yourself. This will help you secure a better deal and in turn pay less each month.

This is a huge decision so make sure you have a sit down chat with the person you are thinking about getting a mortgage with, discuss what you will both do if one of you wants to move out.

Don’t change your application

Once you have started your application, don’t change anything on it unless you desperately have too. Although this may not necessarily be a huge problem it can add unnecessary delay.

Help is out there

A mortgage adviser can be a huge help if you are struggling to get the right mortgage deal, or you don’t know how much you are eligible to borrow then it may be worth having a chat with one of our mortgage advisers. You can contact us here for a no fee consultation chat.

Your home may be repossessed if you do not keep up with payments.