Last updated on March 15th, 2022 at 09:24 am
When applying for a mortgage, there are certain things to consider before filling in the application that could maximise your chances of approval.
Check your credit report
Before applying for a mortgage, you should check your credit report as this will be the first port of call for mortgage providers. Legally, you are entitled to one free credit report from the 3 major credit bureaus (Equifax, TransUnion & Experian) annually.
Staggering your reports so that you receive one every 4 months, rather than all three at once, can help you manage your credit report throughout the year.
By checking your credit report, you see what the mortgage providers will see, meaning that you have the opportunity to make any adjustments or improvements before applying. A lower credit score will make you less likely to be approved for a mortgage so if your score is low, you should start taking action to build your credit score.
Additionally, if there are any errors on your credit score, you can contact the credit reporting company to get these removed. This could be things such as recording paid debts as unpaid, confusion with someone else, identity theft, being financially linked to someone you are no longer linked with (for example, a former housemate or partner), listing closed accounts as open. All of these errors are fairly common but have the potential to negatively impact your credit score. Getting them fixed can instantly improve your credit score.
Demonstrate regular income and a stable job
Mortgage lenders look more favourably on mortgage applicants who are in stable, long-term employment. Before applying for a mortgage, you will typically need to have been employed for at least 3 months in your current job. Those who have only just started a new role should wait before applying and those looking to move jobs should wait until after they have secured a mortgage.
Self-employed applicants may find it slightly more difficult to demonstrate their employment stability. Lenders will typically ask for detailed evidence of their income and they will need to demonstrate a minimum of two years of paid work.
Lower your debt-to-income ratio
Your debt-to-income ratio looks at the amount of debt you have in relation to your overall income and is expressed as a percentage. It shows lenders how you manage your monthly payments and whether your income is enough to comfortably support your monthly outgoings and debts. This is an indication of whether you would be able to take on mortgage payments on top of existing payments. It will also help lenders work out how much money you can borrow and what your monthly repayment plan will look like.
Financial experts suggest that lenders have a preference for debt-to-income ratios of 36% or lower, ideally with no more than 28% of that debt devoted to mortgage payments. In general, 43% is the highest acceptable debt-to-income ratio that borrowers can have and still qualify for a mortgage. Any higher than that and lenders will assume that your monthly expenses are too high for the amount of income that you have.
If you are worried that your debt-to-income ratio is too high, you can work to increase your gross monthly income or reduce your monthly recurring debt.
One of the simplest ways to do this is to cut your monthly expenses and buy less per month. Start to take a look at where you are spending your money and work to create a budget. There may be areas where you can easily cut costs be it switching up your grocery store or cutting down on little luxuries.
Increasing your income is often a little more difficult; however, it may be possible to find an additional income from a second job or take on extra hours or additional responsibilities at your current work. Sometimes completing a certification course in a certain skill may increase your earnings potential and help your chances of mortgage approval in the future.
Save for a bigger deposit
It can be frustrating to wait to buy a house but patiently waiting may work in your favour in the long-run. If you wait to apply for a mortgage, you have more time to save money in order to put down a larger deposit and increase your chances of approval.
With mortgages, borrowers are always required to put down a certain amount of money as a deposit; however, this amount varies from person to person. The rest of the funds are covered by the mortgage provider. If you put down a higher deposit, the mortgage provider will have to cover a smaller proportion of the house value, making it a lower risk for them. Thus, the higher the mortgage deposit you can put down, the more likely you are to be approved for the mortgage.
A larger mortgage deposit may not only mean a successful mortgage application but could also pave the way for better mortgage deals and more favourable interest rates.
Generally speaking, the minimum deposit you would be required to put down is usually 5% of the property’s purchase price; although 95% mortgages are not always as readily available as other mortgage products.
The larger your down payment, the lower your loan-to-value ratio and the higher your chances of securing the mortgage that you want. Also, if you are able to put down a deposit of 20% or more, you will not be subject to a mortgage insurance requirement which could save you money.
Get on the electoral roll
This is a very simple step you can take which could have a big impact on your mortgage application. The electoral register is used by lenders to verify your name and current address. It is a way for mortgage providers to check your identity and make sure that the information you have given on your application is correct.
You can be added to the electoral register at any time if you contact your local council. Those who are concerned about privacy can also specify that they are added only to the electoral register that is not publicly viewable.
