We all know that buying yourself a home will probably be the biggest purchase you will ever make. Just like any big decision, it pays to put some preparation in before making your first move.
Most likely you are going to need a mortgage loan to help you make that big purchase, whether it be your first home or moving up the property ladder.
There are lots of different lenders to consider. Building societies and banks all advertise that they want your business but they all have different criteria as to whom they will lend to. To make the process as quick and painless as possible for yourself, it’s worth investing a bit of time in preparing your finances and paperwork before you take the plunge and apply for a mortgage.
First things first
Make sure you are on the electoral register.
Lenders use the electoral register (or electoral roll) for identity checks; to make sure you are who you say you are and live where you say you live. If you’re not on the electoral roll you won’t even get past the first hurdle.
Credit checks and records
All mortgage providers will perform a credit check as part of the application.
Don’t wait to be turned down by a mortgage lender before you take a look at your credit record. There are three credit reference agencies in the UK; Experian, Equifax and Callcredit. If you go directly to one of these agencies and request your record you can check what financial information they hold on you. It is important to make sure all the information is correct and you aren’t linked to people on your record that you don’t need to be; for example, someone you used to share a joint account with that you no longer do.
Our financial top tips
A few things you could make sure of when you’re preparing to apply for a mortgage:
Always make sure you pay your bills on time and if you can pay off other debts before applying for a mortgage, then do.
This is because your previous history of repaying debt is very important to a lender. Think about it from their point of view; would you want to lend money to someone who had a history of not paying their debt on time, or not paying at all? A less than perfect repayment history may well show up on your credit reference check.
Ensure you keep any payslips, P60's and other income related documentation.
Your lender will need to know you can afford the repayments and will want proof of your expenditure and income.
Be realistic about the mortgage amount
Before you start looking for your first or next home, work out a realistic amount you can afford to repay each month. This will give you a figure for the price tag on the property you can buy. Many lenders have borrowing calculators which can give you a good idea of an amount based on the details you provide on your finances. A qualified mortgage adviser can also advise you on the maximum size of loan you should be considering, according to your specific circumstances.
If you’re a first time buyer, have you saved a sufficient deposit?
Mortgage loans have a maximum loan-to-value (the amount you borrow compared to what the property's worth). Lenders are unlikely to lend 100% of the property’s purchase price, no matter how much you can afford to borrow, so you should save up at least 5% of the value of the house you want to buy. Think about extra costs involved too, such as legal fees and stamp duty, which will also need to be paid for.
Approval in Principle (AIP)
To get that essential lending decision (or ‘AIP’) you need to know all your regular outgoings, debt repayments and regular living expenses, as well as your salary and any other income you receive on a regular basis.
This means getting your paperwork in shape.
You'll need at least the last 3 months of payslips, along with your last P60 and evidence of any other income. If you’re self-employed you may have to provide several years’ business accounts.
You will be asked for at least 3 months’ worth of paper bank statements. Some lenders don’t accept print outs of online banking statements, so it would be a good idea to get your banking provider to send you official copies in advance.
Once you’re confident you have your paperwork in order you should be ready for any questions on your employment and finances and ready to make your mortgage application.