Preparing for a Mortgage
Preparing for a Mortgage
Applying for a Mortgage can seem a little daunting, especially when you don’t know what to expect. Making preparations six months, or even a year in advance can not only improve your chances of being accepted, it can open up the choice of mortgages available to you and, ultimately, save you a lot of money.
All lenders rely on your credit report to get an overview of your finances. Check through this thoroughly as you need to find out what is being said about you. If there are any points of contention you will have to contact the company that has filed the information about you and see if you can get any wrong information corrected.
One thing that can severely damage your chances of a successful Loan Application is having a Payday Loan on your record. Even if it was for a small amount and cleared early, it will drastically reduce your chances, and definitely your choices.
Evaluate your Previous Bank Statements.
Lenders will put a lot of weight on your spending habits, so take a look at your bank statements from the last 12 months and look at what you are spending your money on. If you regularly play the lottery or have weekly takeaways, they will count this as a regular expense and reduce their offer amount accordingly.
You need to coldly look at your statements and see whether you can alter your spending patterns so that they appear more attractive to a potential lender.
Check all your direct debits.
Make sure they are all necessary as they will be deducted from your affordability calculations. If you haven’t checked your insurance and utilities to see if you are on the best tariffs, now is a good time to do so.
If you have any loans or credit cards, look to see how the balances can be reduced or, ideally, eliminated completely. Outstanding balances will reduce the amount that will be offered by a lender.
Do not take on any new credit agreements at least six months prior to making an application.
The most common nasty surprise at present is people with finance agreements for their cars. These are extremely popular now, however a £200 a month agreement for a few years will be treated as a £2400 reduction in your disposable income and will have quite a negative effect of the amount you can borrow.
Obviously, any lender will be interested in your income. A permanent job, held for at least 6 months is their ideal situation. Rolling contracts, jobs with wildly varying bonuses and/or commission will be scrutinised and possibly not taken into account in its entirety. Self employed earnings are typically judged over the previous three years. They will want to see steady growth, or at the very least, consistency. If it is a new venture, they may start asking for accountants forecasts (for which the accountant will charge!) If the income shows a decline, or wide fluctuations, then you will struggle to persuade them to take it into account at all.
The purchase price of the property will dictate what amount you need to save before applying for a mortgage. A property priced at £150,000 will require at least £7500 (5%) as a deposit and you will ideally need a further £5000 for various fees. This minimum of 5% is really the lowest you can get away with, but you won’t find the best deals at that amount. Unsurprisingly, the bigger the deposit the greater choice of loan and access to the better deals.
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