You might have already researched your mortgage options, but have you considered whether you’re mortgage-ready? Preparing for your mortgage application around 6 months before buying a home means you’ll have the best possible chance to secure the right deal.
Here’s how you can boost your chances of getting approved for a mortgage.
How much do I need to save as a first-time buyer?
When buying a home, the size of your deposit will affect how much you need to borrow. The bigger your deposit, the better your access to lower interest rates and monthly repayments on your mortgage deal. Therefore, when you’re saving for a first home, your primary goal should be to save up a large deposit.
The exact amount you need to save will depend on the price of your home and your mortgage provider. Some lenders offer 95% mortgages for first-time buyers, meaning they can buy a house with a 5% deposit.
However, some lenders will require that you save at least 10% of the price of the home you’d like to buy. If you’re buying with a partner, you could save even more and split your monthly repayments in half.
Related: Adding a partner to your mortgage
Be the first to check your credit report
When you apply for a mortgage, you will need to convince lenders that you are a reliable borrower and that you have the financial discipline required to pay back your mortgage on time. Your credit report is a clear window into your financial behaviour and repayment history, so you should check your credit report before your mortgage lender does.
Most importantly, once you’ve checked your report, you can start working on improving it.
Finding errors in your credit report
Another good reason to check your credit report before your lender does is that you might notice that some of the information is wrong. If this is the case, your first step is to check if the mistake is also recorded in your credit files held with other agencies. You can then speak to your lender and explain why you believe there is an error. If this fails, the Financial Ombudsman might be able to facilitate and order that corrections be made.
Related: Can you secure a mortgage with a low credit score?
Getting your finances in order
Once you have a clear picture of your financial health, take proactive steps to strengthen your mortgage application:
Assess your debt-to-income ratio
Lenders will assess your debt-to-income ratio (DTI) to gauge your ability to manage monthly mortgage payments alongside your existing debts. Aim for a DTI below 40% for better mortgage options.
Manage existing debts
Pay down outstanding debts and avoid taking on new ones in the months leading up to your mortgage application. This shows lenders that you can manage your finances responsibly.
Save consistently
Build up your savings to cover upfront costs such as the deposit, legal fees, and moving expenses. Consider setting up a dedicated savings account for your deposit to keep your funds organised. Better yet, if you have a help-to-buy ISA or a lifetime ISA open, you can benefit from the Government topping up your savings by 25%.
Stabilise your income
Lenders prefer borrowers with stable employment and income history. Avoid changing jobs shortly before applying for a mortgage, as it can raise concerns about your financial stability.
Related: Buying position explained
Choosing the right mortgage
With your finances in order, it’s time to explore mortgage options that best suit your needs:
Mortgage types
Understand the different types of mortgages available, such as fixed-rate, variable-rate, and interest-only mortgages. Each type has its pros and cons, depending on your financial circumstances and risk tolerance.
Mortgage terms and conditions
Compare mortgage products from various lenders to find competitive interest rates and favourable terms. Don’t hesitate to seek advice from mortgage brokers who can provide expert guidance tailored to your situation.
Preparing your mortgage application
Before submitting your mortgage application, gather all necessary documents and information:
Proof of income
Gather recent payslips, tax returns, and employment contracts to verify your income stability.
Proof of identity and address
Prepare identification documents (passport, driver’s license) and utility bills or bank statements as proof of address.
Property details
If you’ve already chosen a property, provide details such as its purchase price and location.
Remember, seeking advice from mortgage experts can provide invaluable support throughout this process. With the right preparation and guidance, you’ll soon be on your way to securing the perfect mortgage deal.
For more advice, get in touch with your local Martin & Co branch today
