A mortgage is one of the biggest financial decisions that most people will make. For first time buyers, it can be even more daunting when looking at the process for the first time, especially as it involves taking on a large financial responsibility for decades.
However, with the right planning and knowledge, the process can become far easier to understand. So, if you’re considering taking out your first mortgage, then here are the questions that you need to ask yourself.
One of the first things most mortgage providers do when they receive your mortgage application is to check your credit history. They are making an investment in you and want to know just how responsible you are with your money.
If you have missed loan or mobile phone repayments in the past so your credit history is less than stellar, this can reduce your mortgage options; so unfortunately, your credit score does matter.
So before making a mortgage application, it is worth checking your credit score with a company like www.checkmyfile.com, this will arm you with the information to help you to apply for mortgages that you have likelihood of being accepted for.
If your credit score is lower than you hoped then there are ways to tackle this, see Money Facts article 9 steps to score on your credit rating for more information.
This is one of the biggest questions that you need to ask yourself. Even if you have money saved for a deposit there are additional costs within the purchase process that can take you by surprise, such as broker and valuation fees. There are also the monthly mortgage re-payments. So it is worth spending a little time filling out the Citizens Advice Bureau’s Budget Sheet, just so that you are completely comfortable that the repayments are affordable for you.
Make sure that you are aware of all of the costs and fees that will be included, for more details see GLUK’s article “Different Types of Mortgage Explained”.
Your mortgage provider will want to know that you are in stable employment, with a provable work history. That’s why it’s always a good idea to wait to make your mortgage application until you have been with the same employer for at least six months. If you’re thinking of moving to another company or make big changes to your career, then you might be wiser to wait until you have applied for your mortgage. Alternatively, if you have recently moved to a new job, then the smart move is to wait at least six months before making your application.
Please note that if you are self-employed; you may need to provide up to 3 years’ worth of business accounts showing a stable income.
Just like credit score, any existing debts will impact your mortgage application, affecting the affordability calculation and thus reduce the amount you can borrow.
So, if existing debts are an issue, then you could be better off waiting to apply for your mortgage after you have tackled paid some of the debt back. The more that you can get rid of those debts, the more you may be able to borrow, and the rate could be lower.
It is important to note that student loan debt is also a factor. Many people believe that having a student loan will not play a part in their mortgage plans. While there is some truth to that, the fact is that if you are still paying back your student loan, then the monthly repayment amounts will factor into your ongoing expenses. As a result, they will play a part in working out how much your mortgage provider will justify investing in you. There are tricks and tips for paying off your existing student debt faster, and it may be worth tackling that debt before committing to your first mortgage.
So existing debts are a very important consideration, for more information see the article 10 Ways to Get Out of Debt.
A mortgage provider is going to want to see proof of your income.
In order to prove that you receive regular wages, you will need to show evidence. This will mean showing typically three months wage slips and personal bank statements, as well as a P60. You get your P60 every year from your employer, usually at the end of the tax year, and it’s a vital piece of documentation in the mortgage application process. Alternatively, if you are self-employed, then you’re going to need to provide a SA302 form that covers your payments to HMRC for at least the last three years. If you don’t have a SA302, then you will need to provide less official evidence, such as three years’ worth of bank statements. Not being able to prove your income will most likely result in not getting loan approval.
The stark fact is that the more money that you can save for your mortgage deposit, the less it will cost you over time. Higher deposits will mean that you can get better mortgage terms, so make sure that you do the maths and work out how much you can lower your monthly payments by saving even just a few more thousand pounds. It might be worth delaying your mortgage application until you have more money saved. The more money that you can come to a mortgage provider with, the better your repayment rates will be, and when you are making those payments for many years, it’s always better to wait until you can qualify for a better repayment plan.
The more that you understand just what mortgage providers are looking for from you, the more likely that you can get everything in order before making your application. Make sure that you understand what’s going to happen at every stage of the application process. It’s always wiser to wait until you can present a better financial picture to your provider, so make sure that you understand the aspects of your financial situation that will affect how a mortgage provider will see you. Prepare beforehand and you could be picking up the keys to your new home before you know it.
Looking for advice on your mortgage? Why not request a callback and one of our team will be in touch to book an appointment.
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