One of the first steps to getting a mortgage is to impress the lender with your credibility. So here are a few simple steps to financially prepare yourself to help you get the mortgage you want.
In 2014 the Financial Policy Committee (FPC) said that only 15% of all new mortgage lending offered by banks and building societies could be more than 4.5 times a person’s income. Currently, mortgages of more than 4.5 times the borrower’s income is around 10% of lending.
So, if you want to be in the 15% of high loan-to-income applications, you’ll probably need to have:
- A good deposit
- A steady income
- Little debt
- A good credit score
What to do before applying for a mortgage
- Show lenders that you can manage credit accounts, like credit cards, mobile phone contracts and even some utility services.
- Building up your savings for a few months could help protect yourself against drops in income or increased monthly costs.
- Register to vote at your current address, so the lender can confirm who you are and where you live.
- Check your credit report before your mortgage application to see if there is any information that needs to be updated or corrected
- Check your Experian Credit Score to get an idea of how lenders will see you when they look at the information in your Experian Credit Report.
What do mortgage lenders want to know?
Since 2014, mortgage affordability rules mean that it’s not just about how much you earn, but what you spend and an idea of the costs you might have in the future. So, mortgage lenders will want to know about your outgoings, which includes credit repayments but also utility bills and other fixed regular costs like childcare, school fees, gym membership, season tickets and so on.
Basically, your aim is to convince lenders you’ll be able to afford your monthly mortgage payments even if things changed. For example, if interest rates go up, you lost your job, or your family circumstances change. Mortgage lenders will ‘love you’ far more if they see you’re able to make monthly repayments on time and keep your overall debt under control.
How do mortgage lenders make their decision?
Not all lenders think the same way, and they may have different requirements. But whatever the case, when you make your mortgage application, they will look at
- The information in your credit report
- Your application form
- Information they may already hold on you
- Public record information (such as CCJs)
They’ll put that all together and give you a credit score of their own. Generally speaking, the higher your credit score, the better your chances are of getting a mortgage, and one with better interest rates.
What not to do before applying for a mortgage
- Try not to miss payments, as if they’re late they stay on your credit report for at least six years – lenders like to see a clean bill of health on your credit report as it shows how responsible a borrower you are.
- Don’t apply for credit in the months leading up to your mortgage application. Each credit application is a ‘footprint’ on your credit report, and lenders don’t like to see lots of them in a short period of time – it can make them think that you’re desperate for a loan.
†Experian acts as a credit broker and not a lender in the provision of its credit cards and personal, car finance and guarantor loans matching services, meaning it will show you products offered by lenders and other brokers.
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