So you’ve got the funds together for a deposit, but now comes the part where you’ve actually got to get the mortgage!
Your income and deposit may be right for the amount you wish to borrow, but actually getting approved for a mortgage depends on more factors than this. Your credit score is hugely important, and you'll also need extra funds for stamp duty and solicitors fees etc.
Lenders will check everything from your history with managing credit to whether or not you’ve paid back on time. If something doesn’t meet their criteria, it can result in your mortgage application getting rejected.
You can’t change something that’s already happened, but there are ways to increase your chances of getting approved...
Work out your affordability
Searching for your ideal home for hours is exciting, but unless you’ve figured out what you can really afford, you’ll simply be wasting time. If you attempt an unrealistic mortgage application, lenders will reject it instantly, and this could impact your credit score.
So, work out your price range and affordability before applying. To get a rough idea of your budget, remember that you’ll be able to borrow 4 and a half times your yearly salary. Also make sure that you budget for stamp duty and other fees. There is a tax relief on stamp duty for first-time buyers, but there are limits to this.
Check your credit score
It’s a really good idea to check your credit score before going into an application. If you’ve got a bad credit history then your mortgage will be refused, affecting your credit report.
This is why you need to make sure you’ve got a healthy score before you apply. You can carry out a soft credit check on yourself, and if something isn’t right, you’ll have more time to make it better.
Look into schemes and check the small print
You’re deposit savings will need to equal at least 5% of the property value. However, there are schemes out there that can help boost your savings. The government's Help To Buy scheme is one example, as it’s aimed at making saving for a deposit easier. However, make sure you always read the small print first.
For example, Help-to-Buy ISAs will give you an extra 25% on top of your savings. So for every £200 you save, you’ll get another £50 on top, up to £3,000. But the added money is only paid out once the contract has been saved. Meaning before you get the rebate, you’ll need the funds available to pay upfront.
The Lifetime ISA works in a similar way, but can boost your savings by up to £32,000, or 25% for every £4,000 you save a year. However, if you needed to spend the money on anything other than your first home, you would need to pay a 25% penalty.
If you can, save more of a deposit
Speaking of your savings, it really helps to have as big of a deposit as you can afford. With a bigger deposit, lenders will consider you less of a risk as far as the loan to value ratio is concerned.
Take some time to save for longer, as this will also give you the opportunity to improve your credit rating too. If you manage to save more than you thought you would though, don’t be tempted to go over budget by taking out a bigger mortgage.
Gather all necessary paperwork
You’ll need some specific documents when applying for a mortgage, as they will be needed to provide evidence to lenders, and for affordability checks. At a minimum you’ll need 3 months of bank statements, proof of identification and proof of income.
Lenders will want to know how regularly you've been able to save and how much. Any documents you supply must be up-to-date, so always double check this. For example, the address on your driver's licence will need to match up with the one on the electoral register.
If you’re self employed, then you’ll need to show proof of income, such as your full accounts for the last three years or an SA302 tax form from HMRC. Even if your parents or someone else gave you part of the deposit as a gift, you’ll need a letter from the donor. If you’re going to pay them back then this will be treated as a loan by the bank.
Start improving your credit score
It’s still possible to get a mortgage deal with a poor credit score, but this will negatively impact how much interest you’ll be paying. It’s always a good idea to try and improve your score before applying.
Consider only using smaller amounts of credit, such as making a small purchase on a credit card, or making payments on your phone contract. Using small amounts of credit and paying them off quickly, will help to improve your credit rating.
If you have any larger debts, then it of course it will help your application if you can pay these off. However, cancelling old cards, making sure you don’t miss any payments and getting yourself on the electoral register can also help.
Get a mortgage Agreed in Principle
Getting a mortgage Agreed in Principle, which is an agreement in theory that the lender will give you a set amount, can help your approval chances. As lenders will see you as a more attractive buyer.
Of course you’ll still need to secure the money, as mortgages can still be declined after an Agreement in Principle.
Take advantage of expert help
You can go to a bank or building society directly in order to secure a mortgage, but this will always limit your options. A quality mortgage broker will be able to review a much wider range of products for you, while offering you advice on the right option for your specific circumstances.
At TaylorMade Finance, our mortgage broker team can take you through every step of the process. We’ll be able to easily assess your overall financial situation, and use our expertise to point you in the direction of the lenders most likely to say, ‘yes.’
Get in touch with us today for more information.
