In this two-part article, we’re looking at Being fanciable to a mortgage lender, what they are looking for and ways of improving your chances of getting the best deal. Here’s part two….
Don’t let a partner wreck your score... If you've had any previous joint commitment with another person, such as bank account, mortgage, loan, credit cards, but you're now separated from them, it's vitally important that you de-link yourself from these commitments. If not, any late payments or defaults that they make will reflect badly on you. To do this, either contact the loan company or bank. Alternatively, contact the credit agencies and ask for a “notice of disassociation”.
Manage your available credit wisely... Credit agency, Experian, indicates that if you have debts, lenders prefer that these only make up a maximum of 50% of your available credit. For example, if you have a credit limit of £20,000, they'd like to see that you use less than £10,000 of it. Avoid being close to your credit limit, but also don't have thousands of pounds of available credit unnecessarily. Lenders will get twitchy by the fact that you could suddenly ramp up your debt.
Don't open new accounts... Don't open new credit or loan accounts before the application as this will drastically impact on your mortgage application.
Are your bills paid... This may seem quite obvious but a mortgage company wants assurance that you'll able to make the monthly repayments. Missed payments for other bills will show on your credit file and any defaults count against you for at least a year. Missing a payment could be the difference between you getting a mortgage and not.
The Stress Test... Lenders will ask a lot of details about your outgoings and will probably want to see bank statements to verify this. This is because of rules that were brought in a couple of years ago, meaning that a lender has to “stress test you”. The idea behind it is that if mortgage rates increased, they would be able to see that you could still afford the repayments. So it's worth tightening your belt for at least three months before applying for a mortgage to keep your expenses to a minimum.
Do you have an overdraft?... If you are constantly in your overdraft, this could be seen as living “close to the edge”. Some lenders will want to see that you have not been in your overdraft for at least three months. If you're tightening up on your spending, this should alleviate this problem.
Put Down a little extra... All mortgages have a maximum loan to value but its best to keep just beneath this. Putting down just a little bit more than the minimum will make you more attractive to a lender… so for example, if the maximum loan to value is 80% and the purchase price is £100000 then your deposit would be a minimum of £20000 but instead pay an additional £100 and you’ll be below the maximum loan to value.
Get your paperwork in order... Most lenders will want to see original documents, this includes bank statement from the bank. It may take you several weeks to obtain all of these so its worth getting these together before you make the application. These are just some of the documents you’ll most probably need:
- Your last three months’ bank statements
- Your last three months’ payslips
- Proof of bonuses/commission
- Your latest P60 tax form (showing income and tax paid from each tax year)
- Your last three years’ accounts or tax returns if you’re self-employed
- Proof of deposits (savings /bank account statements) or if it's being gifted to you, they will require a letter from the giver to the effect that it is a gift and not a loan
- ID documents (usually a passport) If you do not hold a UK passport they will require proof of your Right to Remain in the UK
- Proof of address (usually utility bills or credit card bills less than 3 months old)
Don’t skimp on the truth... It will come back and bite you! Your broker may be completing the application with you but make sure when you're filling in the forms that….
- DO state your income exactly. Don’t round up.
- DO give your FULL NAME – even middle names are necessary.
- DO declare ALL your debts. The lender will find them anyway with the credit check, withholding the info can mean a quick decline.
- DO get your three-year address history with dates exactly right, including postcodes.
- DO give honest answers when asked about how much you spend.
What are your chances... Most lenders will offer an agreement in principle… an AIP. This isn’t a full check or a guarantee that they’ll grant you a mortgage but is like a conditional offer based on your credit file and income details that you give them. Just be careful not to obtain too many AIP’s as this could harm your credit score. Some lenders do offer a “soft” search which won’t be visible to other lenders (but will show up for you)… go for this option if you can.
Rejection... You didn’t “make the grade” with the lender… try and find out from them where you fell down and correct it before applying elsewhere. Don’t just jump into bed with the next lender without doing this as each lender will carry out a “hard” credit check which will show on your credit file and could affect your rating.
Dating agencies... Using a good mortgage broker could save you a lot of “heartache” and time, if you’d like some advice or a chat about mortgages that could be available to you, give Ian from Zing mortgages a call 01375 311012