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If you are starting to think about buying a house, you need to know how to prepare for a mortgage application.
House buying is an exciting time for first-time buyers, but it can also be extremely stressful.
Get yourself in the best position possible. Knowing how to best prepare yourself, so that when the time comes the application process goes smoothly, will save you so much unnecessary stress.
When we applied for our mortgage back in 2016, we were not completely prepared. In fact, I would go as far as to say we rushed into it because we found a house we liked.
We were in the airport on our way to Australia for honeymoon when our offer was accepted and the mortgage application got underway.
Trying to get people at home to scan important documents for you to send to your mortgage broker while you are the other side of the world is not the ideal first-time buying situation!
Still, luckily for us everything went pretty smoothly – well with the application itself at least.
We did run into other issues along the way concerning our deposit. But the actual mortgage application itself was absolutely fine – thankfully!
Looking back I see that we bent many of the ‘How to prepare for a mortgage’ rules, but still we managed to get our mortgage without too much trouble.
So I thought it would be worthwhile discussing what you should do to prepare for a mortgage but also the factors in our application that went against these rules in case any of you are in the same situation.
Things to do Before Applying for a Mortgage
It goes without saying that you shouldn’t apply for a mortgage if you’re not in the position to.
Rejections will hinder any future applications so don’t apply until you know you have a good chance of being approved.
But more than that, don’t apply until you know you’re financially sound.
It can be tempting to rush a mortgage application because you are desperate to own your first home. Trust me, I know!
But don’t turn your blinkers on and forget about everything else, or you could find yourself in a bit of a mess.
Save a Good Sized Deposit
The more deposit you have, the better.
If you are lucky enough to live with parents and able to save a good chunk of your wage, don’t rush to buy a house.
Of course, there are lots of schemes and mortgages available with a 5% deposit. But if you can save more than that, do.
I appreciate that dependent on where you live in the country an extra 5% might be a huge sum. But I would say aim for 10% minimum and more if you can.
Save Extra Money for Fees
You might think that once you’ve saved your deposit you’re good to go, but don’t forget house-buying comes with lots of other costs too which could include:
• Mortgage Broker Fee. You don’t have to go with a broker, but I would definitely recommend it for the hassle and stress they save you. Our mortgage broker fee was £150.
• Other Mortgage Fees. Arrangement fees etc (usually these are added to your mortgage).
• Solicitors Fees. Solicitors fees will vary depending on many factors but it’s a good idea to save a few thousand towards these.
• Stamp Duty/Land Transaction Tax. Dependent on where you are in the country and the value of the home you are buying (read more here).
• Surveyor Fees.
• Insurance. Some mortgages require you to have adequate insurance in place before a purchase can complete.
If I remember correctly it cost us around £15k all in. £10,800 for our 10% deposit, £150 mortgage broker fee and the rest covered everything else.
Save Extra Money for Moving
Moving throws up lots of other costs that people often forget about.
• Actual moving costs. Hiring a van/removers.
• Locksmiths. If you change your locks.
• Cleaning supplies. The house will probably need a thorough cleaning before you move in.
• Decorating costs.
• Furnishing costs.
Improve Your Credit Rating
Having your cashflow in order is one part of the equation, but you also need to ensure your credit-worthiness is the best it can be in order to make the success of your mortgage application more likely.
How Can I Improve My Credit Before Applying for a Mortgage?
You should start preparing yourself for your mortgage application at the very least six months before you plan to apply.
If your credit is not good, time is your best friend. But the first step is actually determining where you are right now, in order to know how to improve.
This article details the best ways to check your credit record.
The top 3 recommended credit reports are all free – so don’t be tricked into paying for a monthly subscription.
I would suggest signing up to all 3 agencies and checking what your report looks like with each of them.
You need to check each of them thoroughly for any errors or missing information.
This is why it’s best to start looking at your credit report in advance of your mortgage application. So you can ensure your report is clean as possible and you have time to rectify any incorrect information.
What you need to do personally, to improve your report will obviously be unique to you.
But there are some general ways you can improve your credit score.
Get on the Electoral Roll
If you haven’t already registered to vote at your current address, go ahead and do it now.
You can register here.
Being registered on the electoral roll allows lenders to verify your identity and makes it easier to track down your credit history.
Stop Applying for New Credit
Multiple applications for credit in a short time period can negatively impact your ability to be approved for new credit – so don’t try to take anything out in the lead up to applying for your mortgage.
Pay Down Your Debt
Paying down your debt not only makes your credit file look better, but it increases your affordability for a mortgage too.
Have a play around with a mortgage calculator.
You will see the amount you are able to borrow change dramatically dependent on what you put in the ‘monthly commitments’ field (i.e monthly debt repayments).
Don’t Reduce Credit Limits
Another mistake I made at the time was thinking that lowering my credit limit on my credit card was a good thing.
If you have debt on a credit card and reduce your limit, it actually reflects poorly on you – because all of a sudden your percentage of debt versus your credit available is a lot higher.
Almost maxing out your available credit doesn’t make you look favourable in a lender’s eye.
For example, I had a credit card with a £10k limit, I reduced this to £2k when I was paying off the remainder of the balance.
Let’s say I owed £1,000 – I’ve suddenly gone from having 90% available credit to only 50% – it doesn’t look good (despite my best intentions!).
Avoid Missing/Late Payments
This should be an obvious one but quite often people don’t even realise the impact a late payment can have.
Make sure all your credit accounts have a direct debit in place so that you never miss one.
Correct Any Mistakes
If you spot something that doesn’t look right, query it with the lender.
Remove old financial associations (e.g an ex you might have had a joint account with).
Get your address history right – my credit reports were a nightmare because I’d moved so many times (also not a good factor when applying for credit!).
Check Your Partner’s Report Too
If you’re buying a house with a partner, they need to make sure their credit file is clean too.
What Should You Not Do Before Applying for a Mortgage?
A lot of advice concerning mortgage applications tells us not to make any big lifestyle changes before applying for a mortgage including:
• Changing your name
• Moving home
• Changing jobs
The main reason being that it takes time to update your details, and obviously a job change could result in an increase/drop in salary which will impact your affordability.
Me being me, scored a hat-trick.
We moved in with my husband’s parents 9 months before, we got married less than 2 months before… oh, and I started a new job a month before that didn’t go permanent until a month after our mortgage application.
So if you can avoid doing any of these things – do!
But if like me, you find yourself with major life events all happening at once, here’s how we got around it.
Changing Your Name
It was proving to be way too much hassle to change my name before the mortgage, so I did the application in my maiden name and decided to postpone changing my name until afterward.
It actually took me 18 months to finally get around to changing my name on everything – in fact, my work colleagues thought my maiden name WAS my married name, because I was married when I joined the company!
We had a postal redirect on our mail, but that just made me lazy in respect of updating my addresses – so unfortunately my driving licence had the incorrect address on it.
Guys – seriously keep this updated! 1. IT’S LAW 2. A photocard driving licence is the easiest form of ID and proof of address.
Also, because we were living with my husband’s parents, I had no bills in the last 3 months with my name and address on (which forms part2 of proof of address).
To get around this I went into my bank and asked them for proof of address.
As many of you might be aware, paperless bank statements often don’t have your address on so it wasn’t a case of simply printing them off.
I had to ask the bank to print it off, with my address on and then stamp it’s authenticity.
I’d always planned to change jobs after our wedding, but we hadn’t planned on buying a house quite so soon after, so it never occurred to me that it would be an issue.
Fortunately, despite having only been with the company for a fortnight, my employer was very understanding.
My manager contacted HR on my behalf and requested a letter on company letterhead confirming my employment with them would be permanent commencing 1st January 2017 and also confirming what my salary would be.
This was a huge relief for us as I was the higher earner. If we got a rejection we probably wouldn’t have been able to get the mortgage based on my husband’s income alone.
How Long Do You Need to be in a Job to get a Mortgage?
By my own experience, the answer is ‘that depends’.
We were able to get a mortgage, despite the fact that I was in a new, not yet permanent position. My employer was helpful and the paperwork they provided was acceptable to our lender.
Obviously, this might not always be the case.
So the recommended length of time is 3-6 months. Most companies have a probation period of up to 6 months, so if you’ve been with an employer longer than that, it looks pretty secure.
But it really does depend on your lender and their specific lending criteria.
Does Matched Betting Affect a Mortgage Application?
As you will know if you have read my blog a while, or follow me on social media, both my husband and I often partake in matched betting as a ‘side hustle’.
In fact, matched betting contributed significantly to our ability to save for a house.
So does it affect a mortgage application?
The short answer is yes. It does not look good.
All a lender will see when they request your last 3 months of bank statements is the many gambling transactions littering the page.
And yes, that is how they will view it – gambling.
As matched bettors, we know that it isn’t ‘gambling’ but that’s not how it appears to the rest of the world. And hey, in other aspects it suits us doesn’t it? As the government consider it ‘gambling’ – we don’t pay tax on our earnings – you can’t have it all ways!.
And since you are trying to prove to a lender that you can afford this 20+ year commitment, a lot of gambling transactions are not the way to convince them.
So your best bet is to stop matched betting in the 6 months prior to your application.
However, it is not impossible to get a mortgage if you matched bet.
Both mine and my husband’s bank statements were pages and pages long with countless betting transactions on them and we didn’t encounter any problems.
Again, it depends on a whole host of other factors and your lender’s lending criteria.
What Else Should I do to Prepare for a Mortgage?
Well, this has been a meaty old post hasn’t it? But a few final things to consider before I bow out.
• Don’t lie on your application. If you say your salary is £x you will need to prove it.
• Make sure your application is complete and accurate. Get someone to double check it for you before you submit it. You don’t want to chance a rejection on a technicality.
• Be clear about where your deposit came from. This was the major hitch in our application as my mother in law deposited cash into my bank account. Solicitors/lenders do not like cash transactions. In fact in April 2019 new legislation was introduced to stop you depositing cash into someone else’s account. If it’s a gift you’ll need a letter signed by the person who gifted it acknowledging that it is indeed, a gift.
• Don’t apply for a mortgage before viewing houses – online calculators will give you a good idea of your eligibility. But most mortgage offers expire after 6 months. If you haven’t found a property you like in that time you’ll either have to ask the lender to extend the offer or apply again.
• Get a recommendation from a family member or friend for a good mortgage broker. Honestly, you could go through the process yourself and save the fee. But for me our broker was well worth the £150 for the hassle and stress he saved us.
I hope you have found that useful.
My experience is pretty much how NOT to prepare for a mortgage!
I am in no way an expert. This article should be used as guidance only and you should always do your own research.
Happy house hunting!