When preparing to apply for a mortgage it makes sense to ensure that all of your finances are in order to maximise your chances of being accepted for the deal that you want.
A mortgage is bound to be one of the biggest financial commitments of your life, so to give yourself the best chance of succeeding in your application, it’s a good idea to make sure that your finances give the best representation of you.
The best place to start when cleaning up your finances is your credit history, and all of the information on this can be found in your credit report. A credit report holds information on you and your credit history over the last six years, and includes information on any past credit cards, loans, mortgages as well as things like mobile phone contracts and car insurance (if you paid it monthly).
This information is part of what your lender will look at to help it judge whether or not it wants to lend to you and how much it is prepared to advance. If your report shows up lots of missed payments, it tells them you’ve had problems paying off debts in the past and might lead them to think that you may have problems paying back your mortgage, so it’s important that it looks as encouraging as possible. It’s a good idea to check your credit record before your lender does and it’s really easy to do so. You can log in to your report using a credit checker such as Equifax, Experian or another other credit report service.
If you find that the information on your credit report is wrong then you should do something about it. This could include information on debts that you’ve paid off but are not being shown correctly on your report, or missed payments that are incorrect. If you use either Equifax or Experian to access your credit report, there are Notice of Correction (NOC) processes that you can go through with either company – you’ll just need to fill in a short form explaining the background of your requested correction and then if it’s approved, anyone searching for your report will see the NOC and they must take account of it when you apply for credit. It has to be factual information however – if they believe it to be misleading, you may be referred to the Information Commissioner for arbitration. Alternatively, contact your lender when you find an error and ask them to make the changes. If you have no luck doing this, then you can speak to the Financial Ombudsman about your lender’s mistake and they should be able to help you take action to correct it.
If in the past you have applied for credit with a partner but are since no longer together, it’s a good idea to make sure that you are de-linked from them financially. If you don’t, any late payments or bad behaviour of theirs could reflect badly on you. To do this, write to the credit agencies and ask for a notice of ‘disassociation’. Do this even if the other person has a good credit history, as you never know how their finances will change in the future.
Something that isn’t related to your credit but features just as importantly on your credit report is your personal information. This is usually one of the first things that a lender will look at, so this information needs to be up-to-date. The electoral roll is used by lenders to check identity, so if you find that you’re not on the electoral roll you can register for free here.
When doing this, it’s important to make sure that you register your current address and that your personal information is the same on all of your credit cards, current accounts and any other credit agreements you’ve got.
Cleaning up your finances
As well as showing how you have used credit in the past, you also want to demonstrate to your potential mortgage lender just how well you currently manage your finances. Lenders will look at your income and the outgoings that you have, as well as what could affect these in the future, such as planning a family. Lenders will also have to ‘stress test’ you to see whether your finances would be able to cope if interest rates were to go up.
To gauge this, your lender or broker will ask for details of your income and outgoings and are likely to ask to see your last three months’ bank statements. They could look at everything from gym membership payments to any subscriptions you have. In preparation for this, it is worth consciously cutting back on your spending in the months before you apply for a mortgage. They are trying to assess if the mortgage would be affordable for you, and whilst it might seem intrusive, it is in your best interest – the last thing you want is to be struggling to make your repayments a few months down the line.
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