Ideal for first-time home buyers.
Getting a mortgage can feel like jumping through hoops, wading through water and some other metaphor we can’t quite remember, but with the government’s recent budget announcement presenting an opportunity for first time buyers, now might just be the perfect time to take that leap.
There are so many financial considerations when it comes to buying a home, but for now, these represent a few essentials which any potential buyer should get to grips with before moving forward with their mortgage application. With the help of Beresfords Estate agents, who specialise in houses for sale in Brentwood, here are 5 tips on how to make yourself look financially attractive to mortgage lenders.
STAY ON TOP OF YOUR CREDIT SCORE
When it comes to getting a mortgage, banks want to know about your financial history, and for them to get a clear picture of how you spend and save, this all starts with your credit. Your credit score, for better or for worse, is the culmination of your financial health. If your credit score is low, it tells the bank that you’re a risky borrower.
Your credit report lists all your loans, credit cards, overdrafts, mobile phone payments, and utility payments for accounts open over the past six years. The better your credit score is, the more options you have for home loans. Interest rates can be a real killer for a loan, and with bad credit, lenders will worry about your ability to pay it back.
In this country, simply put, good UK credit scores can help you find an affordable home quickly, and there are a number of things you can do to look after your credit score. It’s important to check your credit report for mistakes, and get them corrected immediately.
Check out our guide on how to get to grips with your credit score and get your credit report in ship shape.
Part of managing your credit score means managing your current available credit, which brings us to our next point…
PAY OFF EXISTING LOANS & CAREFULLY MANAGE YOUR AVAILABLE CREDIT
Do you have loads of outstanding debts? Lenders will look at everything from car payments to existing loans to get a picture of your financial health.
While of course, having these types of debts is completely normal and can actually demonstrate your ability to pay back money on time, lenders want to understand how your pre-existing loans may eat into your income.
Big debts with missed payments can be a red flag for lenders. According to Martin Lewis at Moneysavingexpert.com, “Credit agency Experian says that if you have debts, lenders prefer that they make up less than half your available credit. So if you’ve a combined limit of £10,000, they’d rather you use less than £5,000 of it.” Food for though, indeed.
MAKE SURE YOU’RE ON THE ELECTORAL REGISTER
Because if you’re not on it, you have absolutely now chance of getting a mortgage, even if your credit is in tip top shape.
Don’t worry, you don’t actually have to vote (though, with the mess the country is currently in, you probably should), but being on the electoral register simply demonstrates that you’re actually who you say you are. Fraud and money laundering are such big concerns for lenders that they use the electoral roll to perform identity checks. If you’re not on it, you can register on the electoral role for free.
SPEND LESS ON FRIVOLOUS THINGS
Now, this doesn’t mean a lifetime of asceticism and abstinence while you save for your house; during these trying times, we wouldn’t wish that on anyone. Rather, potential homeowners can still enjoy a rich and colourful day-to-day life, but it does pay to be more mindful of your spending if you’re looking to demonstrate to any mortgage lenders that you’re sensible with your money.
You need to convince lenders that you have the financial discipline that’s required to pay back your mortgage. As such, they will check your bank statements to see that you can afford everything getting a mortgage entails. They usually require 2-3 months of recent bank statements. However, if you’re self-employed, you’ll need to provide 12-24 months of bank statements.
SAVE FOR A SIZABLE DOWNPAYMENT
Not so long ago, it was common that you’d need to front up 5% of the price of your house as a deposit. The pandemic means you might need to save more than before, as lenders are concerned with the pandemic’s effect on household finances.
Because of this, the bigger the down payment, the better chance you have of receiving a loan. If you can, you should aim to save up around 15% to 20%, depending on the price of the property and how good your credit rating and history is. This should usually be sufficient to secure a mortgage.
As we mentioned earlier, you may find that you’re able to utilise the UK government’s recently updated Help to Buy scheme, which in some cases can allow you to buy a property that is worth more, even if you don’t have enough of a deposit already saved up.
And if you’re keen to think big, then check out our article on 5 IDEAL steps to buying your dream home today.