In this brief guide, we are going to discuss what to do before applying for a mortgage.
What to do before applying for a mortgage?
There are various things you may want to do before applying for a mortgage and doing these things could certainly help your mortgage affordability.
Below are some of the things you may want to do before applying for a mortgage:
Get on the electoral roll
One of the things you can do before applying for a mortgage would be to get on the electoral roll.
Most mortgage lenders use the electoral roll when verifying the address details of a borrower.
If you are not on the electoral roll then you may find that your mortgage application could take longer due to verification checks or could even be rejected.
Remove old financial connections
You may have had financial associations with people in the past which are marked on your credit file.
The issue with this is that those people could still affect your credit score based on their current credit behaviour.
You should ensure you check your credit score and ask that a notice of correction be made to remove all old financial associations.
Check joint applicants
If you are making a joint mortgage application then another thing you may want to do is to check that any joint mortgage applicants have the sufficient amount of mortgage deposit which they are contributing or have a good credit score.
Doing this will avoid any last minute surprises.
Get your mortgage documents
One of the main things you may want to do before applying for a mortgage is to ensure you get your mortgage documents ready.
By getting your mortgage documents ready you will ensure that your mortgage application could be processed much faster rather than if you do not have your mortgage documents ready.
You should get your mortgage documents by contacting all of the third parties which hold data which the mortgage lender may want to see.
Your bank statement
Your credit score
Your address history
Check your banking transactions
Another thing you may want to do before applying for a mortgage is to check your banking transactions.
You should get your bank statements and review your banking transactions to ensure that there are not any red flags on your banking transactions such as gambling or payday loans which may affect your ability to get a mortgage.
If you find any of these transactions on your banking transactions then you may want to wait a little longer until these transactions are no longer within 3 months of your most recent banking transactions before applying for a mortgage.
Use a mortgage calculator
Another key thing you may want to do before applying for a mortgage is to use a mortgage calculator.
A mortgage calculator will help you see what your monthly mortgage repayments may be and what sort of mortgage deposit you may need.
You should remember that a mortgage calculator is only there to give you guidance and may not fully represent your mortgage affordability.
Evaluate other homeownership costs
A key thing which you should do before applying for a mortgage is to check other costs of homeownership and other mortgage costs.
When buying a home you will need to also pay for:
- Stamp duty
- Home insurance
- Council tax
- Gas and electricity
You may also have other mortgage costs such as:
- Mortgage valuation costs
- Mortgage booking fees
- Mortgage broker fees etc
Check your credit score
One of the key things you may want to do before applying for a mortgage is to check your credit score.
Your credit score is very important as most mortgage lenders will use this to gauge your mortgage affordability.
If you are unsure of what your credit score is then you should check your credit score from the four credit bureaus in the UK: Experian, Crediva, Equifax and Transunion.
Some of these credit bureaus may charge you a fee to view your credit report so what you can alternatively do is request a statutory credit report which is a free credit report which each credit bureau must provide to you upon you requesting it.
Alternatively, you can also use credit score services such as Checkmyfile and clearscore to check your credit report.
If you have bad credit then you may need a bad credit mortgage broker who could assist you in getting a bad credit mortgage.
Bad credit could include:
- A debt management plan
- A county court judgement
- A bankruptcy
- A mortgage default
- A home repossession
- A missed credit repayment
- A late credit repayment
- Payday loans
If your credit score is low then you may want to build your credit score.
You could build your credit score by:
- Getting on the electoral roll
- Getting a secured credit card or student credit card and showing good credit behavior
- Getting a credit builder loan
- Keeping your credit accounts open for as long as possible
- Avoid missing credit repayments
- Avoid making too many credit applications
- Keep your credit utilization to below 30%
Get a proof of deposit
Another key thing you may want to do before applying for a mortgage will be to ensure you have proof of your mortgage deposit.
Mortgage lenders will want to see that you have sufficient proof of your mortgage deposit before they provide you with a mortgage offer.
Your proof of your mortgage deposit could be a letter from your bank, a gifted deposit letter or similar.
Get a gifted deposit letter
A gifted deposit letter is a letter which you will need if your mortgage deposit is gifted to you by a third party.
If your mortgage deposits being gifted by a third party then most mortgage lenders will require you to have a gifted deposit letter which will usually need to be in a format approved by the mortgage lender.
Some mortgage lenders have their own gifted deposit letter templates which you may need to use.
Clear your debts
Another key thing you may want to do before applying for a mortgage will be to check your current debts to ensure tour debt to income ratio is not too high.
If most of your income is going to pay off your current debts then you may find it very hard to get a mortgage offer.
By checking your current debts you will know if it is possible to get a mortgage at this point or if you should wait and pay off some of your current debts and hence improve your mortgage affordability.
Check for government schemes
Another key thing you may want to do before applying for a mortgage would be to check and ensure you are not missing out on any government schemes which may be able to help you increase your mortgage affordability.
There are a host of Government schemes which you could be eligible for and this could help you increase your mortgage affordability.
- Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire– similar to the above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
Get a mortgage in principle
Before applying for a mortgage you may want to get a mortgage in principle which will indicate if the mortgage lender is willing to lend to you and how much they are willing to lend to you.
A mortgage in principle usually lasts for up to 90ndays and gives you some encouragement that the mortgage lender you are applying to is more likely to lend to you.
Consider if you need a mortgage broker
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.
This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.
In this brief guide, we discussed what to do before applying for a mortgage.
If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.