Getting a mortgage is a big deal. Mortgages work by borrowing a significant amount of money from a bank to pay for real estate. You will be paying it back, plus interest, each month for decades to come, and defaulting (missing payments) comes with significant consequences.
To get a mortgage, you usually call up a financial institute and make an application.
But before applying for a mortgage, there are several things to consider. Specifically, you want to take account of all the elements that affect the kind of mortgage you can get. Some are better than others.
A good application can get you a lower interest rate. And your application may also dictate whether you are able to get a fixed rate mortgage (same interest rate for the entire period) or a variable rate mortgage (the interest rate can change at any time).
To set yourself up to get the best possible mortgage, make sure you are ready to prove you are financially trustworthy.
Prove to credit lenders you deserve the best mortgage deal
The first thing mortgage lenders look at is your credit score. If your credit score is bad, there is really very little else you can do to significantly improve your standing. So make this a priority.
You can check your credit score for free several times a year with any of the UK’s three credit agencies.
If you do not have a good credit score, do not despair. Within a year you can do some excellent work to turn your credit score around. Most of this relates to paying bills on time and in full, which are good habits to have if you are trying to get a mortgage. It is advisable to apply for a mortgage once your score improves.
Ask for a reasonable mortgage amount
It will not reflect well upon you if you are trying to get a mortgage that you cannot afford. This could be because the house itself is out of your budget, and you appear unable to make the required monthly payment.
Before applying, or even looking for a home, you will need to calculate how much you need to borrow and how much you can afford to pay back each month.
Mortgage calculators like this one can help you figure out how much you can expect to pay each month. This will be based on the house price, your deposit, and expected interest rate.
And Money Dashboard can help you determine how much you can afford by giving you an overview of your regular expenses and savings.
Don’t forget to account for all the hidden costs of buying a home.
Prove you’re ready and able to make a significant deposit
In theory, you need to put a minimum deposit of 5% on your new home. But in reality, you are unlikely to find a mortgage lender willing to give you 95%. Evidencing that you are prepared to make a bigger deposit will give you more options when applying for a mortgage.
If you want help building up your deposit savings, Money Dashboard can help you set a budget and stick to it.
Show you earn a stable income
Mortgage lenders are going to want proof that you are earning an income from which you can pay back the loan.
If you have just started a new job, have recent periods of unemployment, or have wildly variable income, this can count against you. The best case is to have a stable income from an employer that you have had for some time. Mortgage lenders will ask for proof of this income and that you are not on probation
If you are self-employed, don’t despair. If you have been self-employed for at least two years with accounts to prove fairly consistent (or growing) annual income, this will suffice.
Erase your debts
Mortgage lenders will see if you have outstanding debts that you are not regularly paying or unable to pay back. These don’t help your case. Try to reduce these debts and regularly pay them off before applying.