Finding that dream home is all well and good, but what if you can't get a mortgage?
With the new Mortgage Market Review rules now in force and affordability at the top of the agenda, you may be encountering tighter application criteria. But this is a good thing, as it ensures that you can afford to keep up the repayments. If you have done all of your sums correctly, it shouldn't mean that you won't get accepted for a mortgage, and with the availability of high loan-to-value (LTV) mortgages increasing thanks to Help to Buy Phase 2, even if you only have a small deposit, you shouldn't encounter too many problems. However, if you're still concerned, there are a few things you can do to increase your chances of acceptance.
Here's a quick run-through of the steps you could take...
You need to save as much as possible for your deposit before you even think about making that application. The bigger your deposit, the smaller the total cost of your mortgage will be, and although there are a lot of higher loan-to-value (LTV) mortgages available for those with a small deposit, you could potentially get a much better interest rate if you scrape together a bit more cash.
You need to make sure you're registered at your current address, something that is particularly important to check if you've moved around a lot. Quite simply, if you're not on the electoral roll, you won't be offered any credit, and if you get declined it could leave a black mark on your credit report. This brings us to...
It's worth going through your credit report before you make your application, because if you know you've got a decent score (which can increase your chances of acceptance), it could be a huge weight off your mind. Plus, knowing where you stand can be the first step to improving your credit score if it's less than perfect, and then you can focus on ways to bring it back up to speed - check out our guide on how to do it.
... but only if you don't have any borrowing already. In line with bringing up your credit score is actually getting one in the first place. If you've never had any form of credit you won't have a score, and that could make lenders less willing to offer you a mortgage - if you don't have a credit history, how do they know whether or not you're a credit risk? Getting a credit card can be the first step to building up a score, but just remember to pay it off each month to show you're responsible.
Even though you'll want a bit of credit to build up your score, having too much can have the opposite effect. If you've already got access to too much credit or have maxed out your cards, make sure you have a plan in place to repay that existing debt before you ask to borrow any more. Lenders may not be so willing to offer credit to those they think are irresponsible.
You need to be confident that you can effectively repay your mortgage each month, so make sure to have realistic expectations about how much you can afford to pay. This is key – if it isn't affordable in the long term you could find yourself in trouble, so make sure you only apply for a mortgage you can afford. Luckily, strict affordability checks are a key part of any application and your lender won't offer you an amount they don't think you'd be able to repay.
Not only will you need to speak to them for extra advice, but you will also want to know how much you'd be able to borrow before you start your search for properties. There's no point finding your dream home only to realise you won't be able to buy it, so make sure you know exactly what you'll be eligible for and how much any repayments would be (ideally putting a budget in place thereafter).
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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.
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