How To Get a Mortgage - 19 Top Tips for Borrowers
With the property market being hugely competitive at the moment, getting your mortgage application right is more important than ever.
Whether you have found your dream home as a first-time buyer or discovered a bargain of a buy to let property, you want to be able to act quickly and confidently when making an offer and not be held back by your mortgage application.
We have compiled a list of the most important things to consider when you apply for a mortgage. They will help you get the most out of your borrowing potential, get the best mortgage deal for you, and iron out any hiccups throughout your application process.
1. Get your deposit right - LTV Band
The greater deposit you have in comparison to your property value, the less money you will need to borrow. This means that not only will you be more likely to get accepted by a mortgage lender, but you could also get better interest rates from committing more of your savings towards your deposit.
Your Loan-to-Value band could also be crucial in securing more attractive rates and end up saving you thousands over the full term of your mortgage. If you can push your deposit into the next band up (e.g., 10%, 20% of your property value), then it can make a big difference.
A 20% deposit can be much more attractive than a 19% deposit due to how mortgage calculators are used, and it is important not to stop there. Even adding as little as £100 over the band you are in can put you safely into that threshold and therefore grant you preferable mortgage rates.
2. Check your credit score
There are three main credit reporting companies in the UK that mortgage lenders will use:
As you will not know which company your lender will use, it is worth checking your score with each one to ensure there is nothing you are missing.
Make sure you input your correct details, including accurate previous address records for at least 5 years, to ensure that the results are correct.
It is free to check your credit score with each of these companies, so this step is a no-brainer.
3. Correct any errors
Check the details of each of your reports very carefully. If you spot any obvious errors or if something does not seem right, be sure to investigate it fully and get your information updated if possible.
4. Credit card repayments - Start taking steps early
“If you’ve never had any credit at all, then you probably haven’t got a credit score” - mortgage expert, Andrew Montlake
The higher your credit score, the better. While having a poor score does not necessarily mean you will get rejected for a mortgage, it could mean it takes longer to get one, and you could end up paying more in interest as a result.
Building up your score can take a while. There are a few quick fixes that we will mention later, but a key aspect of your score is proving your ability to keep up with loan repayments in a similar fashion to how you will with your mortgage.
It can take six to twelve months for this kind of activity to be reflected on your credit score, and so it is worth starting now if you have not already.
5. Be wary of Coronavirus financial support
Loan Payment Holidays - If you already have a credit card and you have been given a payment holiday due to the pandemic, a mortgage lender could find out about it and factor this into your mortgage deal.
A payment holiday taken out after 31st March 2021 will not appear on your credit report, but if a lender notices that your card balance is not being paid off, then they could still consider this for your application.
Furlough & Self-Employed Income Support Scheme (SEISS) - You will likely find it difficult to be accepted for a mortgage if you are currently receiving the above income support schemes.
6. Pay your bills via direct debit
If you are not paying for your utility bills automatically via direct debit it can be easy to miss a payment. A postal reminder might not reach you, or you may not have seen your bill come in through your e-mails, and it can quickly become a black mark on your credit score.
Missed payments and disputes will take six years to be cleared from your record, and while it is not the be-all and end-all of your score, setting up Direct Debits for your utility bills will put your mind at ease.
7. Tidy up old accounts
If you have old, inactive bank accounts, it is a good idea to close them and consolidate your banking arrangements where possible before you apply for a mortgage. Having too many loose ends when it comes to your finances is difficult to manage, and it could end up affecting your mortgage application negatively.
8. Avoid using your overdraft
Dipping into your overdraft, even just for a short period of time, can look poor on a credit report. Do your best to move money around and manage your expenditure to avoid this happening, especially if you are being charged daily interest for being in it.
9. Use Experian’s Rental Exchange Initiative
Your monthly rent payments might be your largest form of committed expenditure, and yet it normally is not factored into your credit score. Keeping up with rent payments is very similar to keeping up with mortgage payments, and so it should be a factor for mortgage lenders to consider.
There are three ways in which you can ensure your rent is being accounted for:
- Ask your landlord to report your rental payments to the Rental Exchange Initiative
- Ask your agents to report your payment if you usually liaise with them instead
- Report your payments yourself, via CredditLadder or Canopy
10. Make use of Experion Boost
Like your monthly rent payments, subscriptions to companies like Netflix, Spotify, and even your Council Tax Bill are not usually taken into account on your credit report, despite being good indicators of how you will be able to keep up with mortgage repayments.
However, using Experian Boost can mean that these outgoings are accounted for, and your credit score could benefit from a point boost by including them.
A boost of 40 or 50 points could even push you into a higher band of the score, and it is also completely free service.
11. Manage your available credit
Having credit available to you through credit cards and loans is not necessarily a bad thing. As previously stated, it can prove your ability to make regular repayments.
However, there are two things to be aware of that could hinder your credit rating:
- Make sure any debts you have do not surpass 25% of your available credit. For example, if you have £5,000 of available credit, try not to go over £1,250 of debt. At the very least, make sure you do not surpass 50% of your available credit.
- Try not to get too close to any of your individual lending limits, and instead spread any debt you have across your accounts. For example, if you have £2,000 of debt and two accounts with £2,500 credit, try to have roughly £1,000 debt with each account instead of getting too close to either of your £2,500 limits.
12. Un-link yourself from ex-partners
Most people do not realise that an ex-partner's credit score could still be affecting yours. Make sure you cut all financial ties and inform all of your banks and credit accounts of your separation, as you could easily be subject to a lower credit rating this way through no fault of your own.
13. Ask for a pay rise
Arguably the biggest factor in how much you can borrow is the amount of income you earn due to the way mortgage calculators work.
Whether you have worked reliably in the same position for several years, or you have just completed some relevant industry qualifications, you could be deserving of a pay rise.
Related Blog Post: How To Get A Professional Mortgage
14. Know what you need
Having all of your documents up to date and ready to go will speed up your mortgage application process, and could even be the difference between getting a mortgage accepted in time for your property purchase.
Here are some things to have on hand when buying a home:
- Recent payslips
- Recent Bank Statements
- ID documents & proof of address (e.g., passport and driving license)
15. Don't check your eligibility too much
Contacting a bank or building society to check your eligibility for a mortgage with them can be a good way to test the waters as to whether you will likely be accepted. However, each time a lender runs a credit report against you it can be recorded on your file.
If too many reports are run against your file, it can start to become a problem and you could find yourself getting automatically rejected for this reason.
16. If you get rejected, correct the issues
If you are rejected for a loan, the bank or building society has no obligation to tell you the reason why. However, some mortgage lenders will tell you, so it is always worth asking.
The key thing is to not try again with another provider until you are confident you have resolved any issues that be negatively affecting your chances.
Too many rejections in a row will start digging a bigger hole to get out of.
17. Limit large purchases
Although big purchases are often a necessity in life, if possible, it is worth putting these on hold until after your mortgage application is accepted. It may just be a one-off, but your mortgage lender might be wary of a pattern or big purchases that could get out of hand.
Additionally, even if the cash you would be spending is not being used for your deposit, lenders will like to see some savings or cash reserves that can be used in the event of unforeseen circumstances.
18. Get an Agreement in Principle
Once you are confident in your credit rating and have an understanding of the amount you will be able to borrow, you should look to get an Agreement in Principle (AiP).
This will significantly speed things up once you find the property you like. Some estate agents will not allow you to make an offer or even conduct a viewing before you have an AiP.
19. Speak to a mortgage broker
Mortgage Brokers are professionals in the lending market and know the unique qualities and drawbacks of each mortgage lender.
You could save a lot of time and effort by using the expertise of a Mortgage Broker, and they can ensure you get the best interest rates available to you which could save you thousands over the full term of your mortgage.
The team at Clifton Private Finance can answer questions you may have about your situation.
Or if you're getting a mortgage in the US, a US mortgage broker can help you compare your options.
To speak to us for free, call our team on 0117 959 5094, or complete our contact form below.