About to apply for your first mortgage and not sure how to prepare? Check these off your list to boost your chances of success.
Getting a mortgage could determine whether you secure your first home or continue renting indefinitely. Key factors influence a bank's decision to approve a mortgage. To position yourself favourably for mortgage approval, follow these steps: Determine your potential mortgage amount by using a mortgage calculator. Input essential details such as the property price, interest rate, and mortgage term. This tool will help you gauge the affordability of homes within your budget and the required deposit amount.
Start by addressing any current debts Existing debts can impact the amount banks are willing to lend for a mortgage Lenders consider both 'income multiples' and affordability To determine mortgage eligibility, lenders assess income and monthly repayment capacity Affordability hinges on income, monthly outgoings, necessary expenses, and discretionary spending Existing debts like loans, credit card payments, and overdrafts are factored into the equation Having less debt increases the borrowing capacity Ensure your finances are in good shape to enhance mortgage approval chances This may involve settling credit card balances or loans and trimming expenses to maintain a healthy financial profile.
3. Check your credit score A good credit score is very important if you want a mortgage. A credit score lets lenders know how reliable you are when it comes to borrowing money. To see where you stand before applying, you can get a copy of your report from an agency such as Experian, Equifax or TransUnion. The sooner you do this, the better. If there are errors, you can get them corrected. If you have a poor score it will give you the chance to take steps to improve it. Common flags on your credit report include missing information, entries you don’t recognise, or just inaccuracies. For example, you might find a County Court Judgment (CCJ) that is still on your report, even though you’ve settled the debt in the allocated time. Simple ways to boost your credit score include registering to vote, paying bills on time and repaying your credit card in full each month. Closing down any credit accounts you are no longer using can also help.
4. Apply for a Mortgage Agreement in Principle You can test the waters of how much you can borrow by asking for what is known as a mortgage agreement in principle (AIP). An AIP is essentially a letter from a bank or building society. It states the kind of loan amount you might get, based on an initial assessment of your circumstances. It’s free to get an AIP. Typically, an AIP will last between 60 and 90 days. If it expires before you need it, you can always reapply. But remember, an AIP is only an estimate. It's not a formal mortgage offer and the lender who issued it can still decline to give you one.
5. Contact a broker to get all your options You can apply for mortgages directly from high street lenders by filling in forms online. But you might want the reassurance of speaking to an expert in the form of a broker. Your broker will compare mortgages across the whole of the market and help you to find the best deal. They will work with you to find the best rates and fees for your individual situation. And they'll know which lenders will be more likely to accept your application. Brokers can also have access to exclusive deals that are not available directly from banks and building societies. This can be particularly useful if your circumstances are a bit complicated. Sometimes high street lenders can be very strict with their application criteria. So, if you’re self-employed, have a poor credit history, or are an older mortgage applicant, going through a broker can give you better options.
6. Do your own mortgage research If you’re looking for your own deal without a broker, there are plenty of good mortgage comparison sites to look at. If you do go via a broker, you can still back up their findings with your own research.
8. Double-check the rates before you sign up A mortgage rate is the amount of interest you pay on the loan. It’s the money you’re charged to borrow the money, so to speak. The lower the interest rate on your loan, the cheaper your deal over the term of the mortgage. Getting the right rate on your mortgage is very important. A few percentage points difference can translate into thousands of pounds a year on such a large loan. That said, it’s not just about cost. You need to make the right choice on the type of mortgage that best suits you, as this can directly impact on your future choices and flexibility. That means deciding whether to go for a fixed-rate deal, a tracker or interest only.
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