It can be daunting making a mortgage application, so here are seven steps you can take to boost your chances of being accepted.
1. Pay bills on time - set up direct debits
Mortgage lenders will want to see that you’ve got a good track record when it comes to paying your current commitments. To avoid late payments having a negative impact on your credit record, think about setting up direct debits so that you never miss a payment. It’s best to set them up to leave your account just after you get paid.
2. Check your reports for any errors
It’s good practice to become familiar with your credit record. As well as learning of areas for improvement you’ll be able to spot any errors or information that could count against you. Perhaps a late payment has been reported in error, or you’ve got old financial associations with an ex-partner that you should remove. You should be able to have incorrect information removed or you could write a notice of correction to explain any previous financial difficulties.
Regularly checking your credit reports will help you spot any fraudulent activity on your accounts too.
Remember to check your file with all three reference agencies as the information each holds could be different. You can check them all free:
- Equifax - free with ClearScore
- Experian - free with Money Saving Expert’s Credit Club
- TransUnion - free with Intuit Credit Karma.
3. Stop making credit applications
If you’ve applied for any kind of credit recently and the lender has done a hard search then this will be recorded on your credit file and the mortgage lender will be able to see it. Too many applications for credit could be a sign that you’re struggling financially and may be a red flag to any lender.
At least six months before making a mortgage application try to avoid applying for other credit, for example a credit card, a new mobile phone contract, and even car insurance. If you really need to then check if the lender does a soft or hard search first as soft searches, although recorded on your credit file, aren’t visible to other lenders.
Read more about improving your credit record.
4. Register on the electoral roll
It’s important to make sure that you’re on the electoral roll at your current address as this will form part of the ID check for your mortgage application and will hold the application up if it isn’t correct. You can easily see if you’re on the electoral roll (and register if you’re not) on the government website.
5. Reduce your existing debt
Although lenders like to see a certain amount of credit (as long as it’s being managed well) they don’t want to see too much. Your outgoings should never be more than your income, and the lower the debt-to-income ratio the better. Lenders will want to be sure that you can afford the mortgage repayments and that you have enough spare income to cover emergencies or interest rate rises.
If your debt-to-income ratio is too high then clear some debts before making your mortgage application. A good ratio is between 20% and 30%
6. Get on the Rental Exchange Initiative
If you’re a rental tenant it can be hard to prove that you’re reliable at making important payments each month. The Rental Exchange Initiative was introduced to provide tenants with a way of reporting their rent to Experian and/or Equifax. It’s free to do and as long as the rent is paid on time each month it’ll help your credit history and show lenders that you’re a reliable payer. Remember that this works the other way too - if you miss a rent payment it will be recorded as a late payment on your record.
7. Look into extra help
There are various schemes available to help you buy a property:
A LISA - If you’re a first-time buyer, and under the age of 40, you could help boost your deposit by starting a LISA - put in up to £4000 a year and the government will add 25%.
The 95% mortgage guarantee scheme - the government is lending a helping hand to property buyers by encouraging lenders to offer 95% mortgages. Although it’s always best to keep your LTV (loan-to-value) as low as possible if you’ve only got a small deposit then this scheme could help you.
Shared ownership schemes - if you can’t afford to buy a home outright you may be able to purchase a share of a property and pay rent for the remainder. There are pros and cons to shared ownership so make sure to research it thoroughly - read more about this scheme.
Keep reading to find out how to save for a house deposit quickly.
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