As you start or grow your family you may be thinking about buying a new home for the first time or looking for something with a bit more space. Lots of things have changed in the mortgage market since the recession but mortgage availability is at an all-time high so it may not be as difficult as you thought. Interest rates are at an all-time low to, so it may be a great time to look for a new deal for your current mortgage too. There are a few things you can do to prepare if you’re thinking of buying a property or remortgaging.
Start by thinking about the cost of the sort of property you would like and the size of mortgage you need. Have a look online to look at the properties in the area you are interested in. Generally, you need a deposit of at least 10%. However, you will find if you are able to save a deposit of 15 or 20%, the interest rate will be lower. Remember to also budget for stamp duty, fees and moving costs too. Check how much your basic salary or salaries are. Lenders will generally want 3 months pay slips so you may want to start gathering these together. If you’re on probation or temporary contracts this may make things more difficult depending on your circumstances so consider speaking to your employer about a permanent contract. You can discuss this with a mortgage broker first to see if your circumstances are an issue. Also make a note of regular over time and bonuses, child benefit, tax credits, maintenance and any other income as this can all potentially be used towards income.
Have a look through your household finances and work out a budget including how much you can reasonably afford for your new mortgage. Are there things you can cut back on? A bit of housekeeping for your finances is good practise in general but even more important before one of the biggest purchases in our lives. Lenders will also want to know about any debt and access to finance you may have. Close down credit cards and store cards with zero balances as lenders will potentially see that as a risk if you have too much credit available to you. Think about consolidating adhoc credit card debt to a zero interest balance transfer card to keep it all together and close any other that aren’t needed. Credit agency Experian says that if you have debts, lenders prefer that they make up less than half your credit limits. So if your combined credit limit totals £10,000, they’d rather you use less than £5,000 of it. Try and stay out of your overdraft too. Remember the lenders will see your last 3 months bank statements too. They want to see someone who is managing their money well and can afford to live within their means.
You should check your credit file thoroughly. You can do so with Equifax or Experian and they often have free trials. You can also use a website called Noddle which offers a free check. The lenders will be able to see your last 6 years credit history. If there are any errors contact the company immediately and ask them to correct it. Make sure you’re registered on the electoral roll – most lenders will check this! It sounds obvious but make sure you keep up to date with all your payments. One missed payment can make a difference. If you do have historical defaults, don’t give up hope. Seek advice from a whole of market mortgage broker as there are potentially solutions out there. Don’t apply for credit if you know you are applying for a mortgage soon. Repeated searches can be detrimental to your file and the lender may be concerned that you’re not managing with the funds available to you if you require further credit. Try to avoid insurance comparison sites too – they often do search your credit file without you realising and this can be detrimental too.
Start gathering together the documents you will need. Your lender may want to see any or all of:
- Your last three months’ bank statements
- Your last three months’ pay slips
- Proof of bonuses/commission (P60)
- Your last three years’ accounts or tax returns (SA302s)
- Proof of deposit (for example statement of the account the deposit is in)
- Gift Letter (if a family member is giving you the deposit you will also need a letter from them)
- Proof of ID (photo ID such as passport)
- Proof of address (driving licence or utility bill)
The next step would be to seek advice. Speaking to an independent mortgage adviser is a good place to start. They can tell you what you will be able to borrow. They will also be able to advice the cheapest lender which best fits your circumstances. Sometimes there are mortgages that would be cheaper but your circumstances don’t fit with them so you would be declined if you applied. A mortgage adviser can take you through the process to hopefully avoid that.
Lastly, tell the truth. There is no point withholding information, it is more than likely it will come to light. There are many products available for different circumstances now and if you aren’t able to get a mortgage at this point a good adviser will be able to tell you what to do to enable it in the future. Taking on a mortgage is a massive responsibility and a financial risk so it is important to get unbiased financial advice based on your entire circumstances. Remember brokers hear about peoples circumstances every single day so will not judge you or be embarrassed! It seems like a scary process but with the right advice your choices will become clear and you will hopefully be in your family’s new home sooner than you think!
Why not check out our handy guide to ‘Buying your First Home’ which will explain how to:
- Understanding mortgages
- Types of mortgages
- Know what you can borrow
- Making the most of your deposit
- Schemes to help first time buyers
- What else to consider
- Getting everything in place
- The application process
YOUR HOME MAY BE REPROSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE