How to Get Ready for a Mortgage | money
Get a baseball figure
One of the first things you should do is have a realistic idea of how much you’re likely to be able to borrow so you can see if it’s worth continuing. This essentially depends on three factors: your income, your expenses and the amount of deposit you want to deposit.
There are many mortgage affordability calculators online that can give you an idea of the amount of loan you can possibly get. The government-supported MoneyHelper website has aas well as many banks, mortgage brokers and comparison sites.
When you apply, the lender performs a detailed affordability check to find out what you can repay based on your income and spending obligations. Lenders are also currently required to “stress test” your ability to repay if interest rates rise or your circumstances change fundamentally, e.g. B. if you are laid off or have a baby.
Check your credit file…
Before applying for a mortgage, check your records with one, or ideally all three, of the main credit reporting agencies: Equifax, Experian, and TransUnion. This alerts you to issues that could result in you being rejected or being offered a less competitive mortgage rate, such as: B. Failure of your file in relation to a missed payment. In some cases, you may be able to resolve these before applying for a home loan, after which the lender will conduct their own check.
Make sure your records are accurate and up to date, and dispute anything you disagree with. A Correction Notice allows you to explain specific circumstances behind previous arrears or omissions, such as: B. a period of illness.
The agencies usually offer various free and paid options to check your creditworthiness or score. For example subscribing to credit karma You can check your TransUnion score for free on the website.
…and keep it in order
Before applying for a mortgage, keep a close eye on your credit rating. During this time, try to avoid applying for other forms of credit, such as loans or overdrafts, if possible, as this could deter a mortgage lender.
Also, try to steer clear of “buy now, pay later” offers when shopping, as this is a form of credit that is well worth it increasingly appear in people’s files.
Payday loans are bad news – some mortgage lenders will turn you down if you’ve had one in the last 12 months.
Check your bank statements
A mortgage lender typically insists on looking at bank statements for the past three months as part of their affordability checks, says Nick Mendes of mortgage broker John Charcol. The lender will go through them with a fine-toothed comb to verify that you are financially sound and can afford the repayments. So there’s a strong case for cutting back on your spending and reducing or eliminating overdrafts.
“In the months leading up to the application, it’s worth tightening your belt” says the website MoneySavingExpert.com.
That might mean forgoing the non-essential extras that show up on a bank statement, like rounds at the pub, take-out meals, and expensive coffees. You might want to go further and give up things like regular payments to Netflix, Spotify, and the like.
Check your details carefully. Are you paying for things you no longer use or need, or that you can get cheaper elsewhere, like cell phone insurance you bought years ago? If so, drop them.
Familiarize yourself with “income multipliers”.
Traditionally, the typical maximum someone can borrow is four and a half times their annual income. This is called the income multiplier.
If this is lower than you’d like, the good news is that some lenders have started offering higher income multipliers as house prices have skyrocketed in recent years. Halifax and Barclays are among those boosting income by 5.5x for high-earning borrowers. The mortgage bank Habito goes up to seven times the salary in some cases. Meanwhile, a new lender named Perenna plans to issue mortgages for up to six times salary and is inviting people to join its waiting list.
Increase your deposit
One of the most difficult tasks for aspiring homeowners is building up a deposit — it can take years. Halifax said in January that the average first time buyer deposit in the UK in 2021 was almost £54,000 and represented 20% of the purchase price.
There are now more mortgages that require only a 5% down payment than when the pandemic started. But if there’s a way to save more than 5%, it opens the door to a wider choice of deals and lower interest rates. Currently, for example, fixed-rate mortgages where you borrow 90% of the property’s value are typically about 0.4 to 0.5 percentage points cheaper than those where you borrow 95%.
Some buyers can top up their down payment by reaching out to “mom and dad’s bank” or other family members or friends for help.
Get government help
The life that Isa lets you save for a first home costs up to £450,000. You can save up to £4,000 each year until you turn 50, and the Government adds a 25% bonus to your savings, up to a maximum of £1,000 a year. To open one, you must be between the ages of 18 and 39.
In the meantime you can no longer open new ones Help buying Isabut if you already have one, you can deposit up to £200 a month and the Government will add 25% (up to £3,000) to your savings when you buy your first home.
Register to vote
Make sure you are on the electoral roll with your current address. Lenders use it to validate who you are. Not being there might cause some to reject you.
Think of a broker
With so many deals to choose from, some homebuyers may feel like they need someone to hold their hand. A mortgage broker can research the market and help you find an offer that’s right for you. It’s probably a good idea to use one if, for example, you’ve had credit problems in the past or your job or financial situation isn’t easy. There are a number of mortgage brokers who offer advice free of charge, including London & Country (L&C).