Choosing to apply for a mortgage, especially for the first time, is a huge step. Buying your first house is a significant life event. It’s your chance to settle. To become part of a community and make a life for yourself. Once you own a house, you can start thinking about putting down roots. You might have decided to wait until you own a home to settle into your career or start a family. For many, buying a home is the start of a brand new chapter in their lives. It’s thrilling.
Preparing to Apply for a Mortgage
But it’s not always easy. You might have read horror stories about people struggling to get approved for a mortgage, even if they have money saved for a deposit and a good financial situation. While it’s true that getting a mortgage is more complicated than it used to be, it’s by no means impossible. Banks are more reluctant to lend, but that just means that they seek more information and reassurance before they do so. With a little organisation and careful planning, there’s no reason why you can’t get a mortgage to buy the house of your dreams. Here are some of the things that you can do to prepare for your big application.
Get to Grips with Your Finances
The first thing that you need to do before even starting to look at houses is to take ownership of your finances. If you are the sort of person that never looks at bank statements, leaves bills unopened, and has no idea what is going on in your bank account, you are certainly not alone, but you do need to gain a greater understanding.
Sit down one afternoon without distractions and look at your bank accounts and debts. You might want to build a household budget, including all of your bills and other expenses and your income. Look at your debts, understand how much you owe, how much you are currently paying, and how long it will take you to clear them. Know how much disposable income you’ve got.
It’s important to understand that debts don’t stop you from being approved for a mortgage, but a poorly balanced bank account might. Use this time to make cutbacks, cancel contracts, and switch to cheaper providers. You might even want to move some debts to lower interest accounts or take out a consolidation loan. Check your credit score first, though, as new applications will have an effect.
Check Your Credit Score
Your credit score is exceptionally important. Your score and history give lenders an idea of how good you are with money. It shows how responsible you are, how well you manage money, and how stable your finances are. Check your score and read your reports. If there are any mistakes, try to correct them.
If your score is low, making changes, like getting on the electoral register, and sticking to the same contracts for an extended period, can help.
Understand Your Circumstances
Your personal circumstances will play a big part in your application. Read this guide to mortgages for nurses if you work for the NHS, for some specific advice. Lenders will also want to know about your relationship, any joint applicants, and their own details and your current living situation.
Work Out What You Can Afford
A mortgage broker can help you with the details, but it’s a good idea to know roughly what you can afford before you start looking at houses and considering applications. Think about what you are paying in rent now, and that disposable income and be realistic in what you can afford to pay every month.
Stability makes a good impression and improves your credit score. Banks see people that stick to things as being more reliable and less of a risk. Living at the same address, keeping the same job, and even sticking with the same bank account, make a great impression.
Compile Proof of Income
Any lender will want to see proof of your income before anything else. So prepare it. Most of us now get payslips online, so you might want to print them out, or at least make sure they are saved in a folder on your desktop. If you are an employee, you’ll need at least three months’ proof of income. If you are self-employed, you’ll need two full years of accounts and details of your income. You’ll also need bank statements and details of your savings and debts.
Maximise Your Deposit
The more deposit you’ve got, the more likely you are to be approved for a mortgage. It can even be worth looking at cheaper houses than you can afford, to maximise your deposit, leaving you with less to borrow.
Check out more Sim’s Life Finance posts