7 Things You Can Do Right Now To Help You Get A Mortgage - RiteMortgages

7 Things You Can Do Right Now To Help You Get A Mortgage

Getting a mortgage agreed with a lender especially your first one isn’t an easy process. Without the proper knowledge and planning a lot of people simply aren’t ready to “present” themselves to a bank to ask for 100’s of thousands of pounds….

I have a friend I’ve known since school. He has a good job and was sent all round the world fixing engineering issues for a large multi-national oil company. He was paid a small fortune and on paper should have been a shoe-in for getting a mortgage but by the time he swallowed his pride and called me (it was actually his wife J) he had been declined from 2 banks, yes twice and had given up hope of buying a place for his family to finally put down roots. Did he have bad credit? Nope. He had no idea about his finances, what goes out, where it goes, when, no idea! With a bit effort and organisation we sorted him out with a mortgage; wife and kids are happy and there’s plenty of space to grow and even a spare room for guests….

The lesson is don’t wait until it’s urgent, get prepared now

If You Know Your History, Credit That Is!

Have you ever had bad credit or been declined for a loan or hire purchase? If you have the chances are you may have had some bad credit or adverse credit history in the past. No matter how old though it’s best to do something about it but first get informed. Get your credit report. There are free options available and statutory reports are very cheap, but the lenders all use two main companies, Equifax and Experian. Your credit report will tell you What it was, When it was and How much it was for, all information we need when making an application.

It will also show whether you are or are not on the voter’s role, your address history and any financial associations you have. All things that count when applying for a mortgage, that the lenders can see but you may not even be aware of! But if there’s something you were expecting to see on your report that doesn’t appear, that may not mean it doesn’t exist, it’s probably only been shared with one agency. Best advice is to check both to be sure.

Money. Money. Money

How much do you earn? It’s a simple question but one often people get massively wrong. We need to know how much you earn as basic income before paying tax per annum if you’re employed or how much your tax return declares on your self-assessment if you’re self-employed.

Lenders will let you borrow up to 4.5x your income and take into account some of your overtime (if it’s regular), commission (if there’s a track record) bonuses (if they are guaranteed) and benefits that are likely to continue after you have bought a house (no, housing benefit isn’t included!) Ideally you need to be in your job for a year, have 3 payslips and a P60 or if you’re self-employed have submitted 3 years tax returns to HMRC and can get the paperwork to prove it. There are exceptions of course and your advisers may still be able to help if you don’t exactly fit in that round hole!

Do You Have To Buy Those Shoes?

Lenders will ask for at least 3 months bank statements, why, they want to see you can live within your means. Do you know how much you spend every month? Very few of us know

exactly where our money goes and even less actually stick to a budget but that’s exactly what you need to do to get on the housing ladder. Think of your mortgage underwriter as a nosey aunt. Would you want your aunt to see your visits to the bookies or regular trips to the shopping mall followed by a night in the pub? Lenders are looking for reasons why they should lend you £100,000. Be sensible. Simply put, money in minus money out = what you can afford. Look at what you’re spending like your nosey Auntie Jemima and wonder what she would say, it will help a lot with #6&7.

Bank Statements Tell No Lies

When underwriters are looking through your last 3 months bank statements line by line, they are looking at piecing together the bigger picture, can this person afford this mortgage? What if their income goes down a bit or their bills increase a bit, are they likely to afford this mortgage then? If you have a reliance on an overdraft, the answer is no. Does the Net Income figure on your payslip match the figure and date on your bank statement? Does your bank statement show typical household bills, utilities, council tax etc.? Are there signs of bad credit or missed credit payments such as rejected Direct Debit Mandates or fees? Are you paying your rent or existing mortgage at the same time every month? Are there undisclosed Gym Memberships, Nursery School fees, insurance policies or other expenditure?

Pay Day Loans Are The Work Of The Devil

We have heard some people say that they have read they should get a loan to improve their credit score. Sometimes gaining some credit can be a good idea before applying for a mortgage, but not just before and never a pay day loan.

Necessary or not, the very existence of a Pay Day Loan on your bank statement or credit file is usually an automatic mortgage decline. Put as much time between you and your pay day loans, (the worst form of borrowing ever!) and never use them again. 12 months or more is ideal but some flexible lenders may take a more sympathetic view if it’s a one off or extraordinary occurrence on your otherwise bad credit free credit report.

Not All Debt Is bad, Expensive Debt Is Bad

Here’s where you have to start making tough decisions. The less regular or committed outgoings you have (debt payments), you will have a greater budget or affordability for a mortgage. The more you can save every month from your salary the better the position you will be in when the underwriter (or computer in most cases) calculates what you can afford to borrow. Lenders deduct and use a varied but fixed % of outstanding credit card debt as a regular monthly contribution from your affordability and the total of any loan or hire purchase (HP) payment. However some lenders will and can ignore any loan or HP payments with less than 12 monthly payments left leaving us all confused as to which debts you should prioritising repaying before applying for a mortgage. The expensive credit cards or the loan payments that will both affect how much you can borrow. There is no easy answer, pay off what you can afford as long as you already have your deposit but if you have a lot of credit card debt, long term it’s a very expensive way to borrow, and you should be repaying the most expensive borrowing (by % interest rates) first.

Save Every Penny You Can For That House

You need a deposit to buy a house. Forget what you have read or someone told you. You cannot get a mortgage without a stake in the game. It’s either your money or it’s a family members but genuine 100% Loan to Value mortgages do not exist. Deposits are generally from savings, inheritance or a gift from a family member, most usually an immediate family member only. If you don’t have a deposit yet what’s the solution? Stop spending money. It’s easy enough, yeah? Do whatever you can to get at least 5% of the purchase price (15% if you have had bad credit) plus taxes and legal fees. The bigger the deposit the better. We have had clients fail at 95% loan to value but pass at 93%! Have you heard the phrase, “every pound is a prisoner”? Live like a hermit for 6 months, eat beans from Aldi and sacrifice holidays and fancy clothes. Move in with Mum and Dad, prioritise your spending, check and see if you can compare and save on utilities and insurances (but beware of anything you can’t switch to a new place). Go through your bank statements with a fine tooth comb, know where every penny is going and think do I really need that? Set a budget and do everything you can to stick to it.
It’s not easy but it is worth it. When you get the keys to your very own place will you be happy? You know you will. Paint the walls purple, hang 100’s of pictures, get a pet, design your dream kitchen or spend all night in a bath overflowing with bubbles. It’s your home, enjoy it, you’ve earned it.
Disclaimer – This does not constitute financial advice. Please speak to a professional adviser for information specific to your needs and circumstances.
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