9 tips to make sure your first mortgage application gets approved
GETTING the funds together for a deposit is one thing, but actually getting approved for a mortgage is another.
More than 76 per cent of first-time buyers applied for a mortgage in the first quarter of 2018, up from just 48 per cent two years before, according to Mortgage Lenders Association.
An empty application will be rejected which will damage your credit score and set you back months.
Jacqueline Dewey from credit report service Noddle says there's more to it than just having a steady salary and a deposit.
There's your credit score for one thing, but also you'll need the extra funds to pay for stamp duty, solicitors fees and a broker.
"Mortgage lenders want to see that you have a history of being able to manage credit and pay it back on time," she says.
"While you can’t change anything that has already happened, you can ensure that your financial behaviour going forward makes you an attractive prospect for a mortgage."
With help from the experts at and , here are nine tips to get you mortgage ready:
1. Work out how much you can afford
It's all well and good spending hours searching on Rightmove for your dream home, but it's a waste of time if the places you're looking at are way out of your price range.
Lenders reject unrealistic mortgage applications and that in turn will damage your credit score and make you worse off.
The most you'll be able to borrow is four and a half times your yearly salary, which will give you some idea of your budget.
So for the average worker earning £26,000 a year will be able to borrow a maximum of £120,000.
These are the types of homes you will be able to afford on that budget across the UK - although none of them are in the South East.
2. Take advantage of schemes and always check the small print
You’ll need to put at least 5 per cent of the property value as a down payment unless you're boosting your savings with help from a scheme.
For those who are serious about owning a home there are schemes out there that will boost your savings if you spend it on buying property.
The government wants to help aspiring homeowners with the Help To Buy scheme aimed at making saving for a deposit more attractive.
But the professionals over at Trussle advise you always look out for the small print.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a grim task but there are schemes out there to help first-time buyers own their own home.
Help to Buy ISA - It's a tax-free savings account where for every £200 you save, the government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move.
Help to Buy equity loan - The government will lend you up to 20 per cent of the home's value - or 40 per cent in London - after you've put down a five per cent deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime ISA - Another government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards your first home. You can save up to £4,000 a year and the government will add 25 per cent on top.
Shared ownership - Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you're restricted to specific ones.
"First dibs" in London - London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative - A government scheme that will see 200,000 new-build homes in England to be sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest .
The Help-to-Buy ISA for example will boost your savings by 25 per cent, so for every £200 you save, you’ll receive a government bonus of £50, up to £3,000.
But the bonus is paid out AFTER the contract has been saved so you'll need to have the funds available to pay upfront before you get the rebate.
Another option is the Lifetime ISA which also receives a boost of up to £32,000 from the government towards your first home, or 25 per cent for every £4,000 you save a year.
But if you want to spend the money on something else, you'll need to fork out a huge 25 per cent penalty, leaving you out of pocket.
3. Check your credit score
If you've got a bad credit history then you're going to be rejected for a mortgage, which will only make your score worse.
Before you apply make sure you've got a healthy reading. You can carry out a soft credit check on yourself with one of the three main credit referencing agencies, Experian, Equifax, and Call credit.
The earlier you check, the more time you'll have to fix it if it's not looking great.
How do I check my credit report?
TWO thirds of Brits have no idea what their credit score is, so it's worth checking yours to see if you need to improve it.
All three CRAs offer you the chance to view your score, report and more for a monthly fee BUT you can get hold of your score for free without paying for a subscription.
Experian - Sign-up to its CreditMatcher service which will give you access to your score and help you shop around for deals you are likely to be accepted for. If you want access to your full report you'll pay £14.99 a month after a 30-day trial period ends.
Equifax - You can get your Equifax report AND score through a website called Clearscore. If you go to Equifax directly you'll pay £14.95 a month after its 30-day free trial.
Call credit - You can get your report and score for free via its Noddle website, which advertises loans and cards you are likely to be accepted for.
You also have a legal right to access your report from each CRA for just £2 - but this won't include your score.
4. Improve your credit score
While it's not impossible for you to get a mortgage with a poor credit score, you'll be paying over the odds in interest.
You're better off holding out for a few months while you try to improve it.
One way is to continue to use small amounts of credit, like on a credit card or your phone contract.
It might sounds a bit backwards but using small amounts of credit and paying it off in good time shows lenders that you are responsible with credit.
Pay off big debts because a mortgage lender may think that you won't be able to take on more credit, as you might not be able to meet the repayments.
Getting on the electoral register, cancelling old cards and never missing a payment will also help your score.
5. Get the paper work together
You'll need to provide evidence of the deposit for the affordability checks.
They'll want to know how regularly you've been able to save and how much, including at least three months worth of bank statements.
Your documents will need to be up-to-date so make sure that the address on your driver's licence matches up with the one on the electoral register.
If you've been given part of the deposit as a gift, you'll need to make sure you've got a letter from the donor.
Be aware that if your parents have lent you the money and you're going to pay them back then the bank will treat this as a loan.
If you're self-employed, you'll need to provide evidence of your income, or your SA302 - a tax form provided by HMRC. It can take up to 14 days for you to receive this.
6. Get a mortgage in principle
This is an agreement in theory that the lender will give you a set amount, which makes you a more attractive buyer.
You'll still need to actually secure the money and the bank will also have to take into consideration any financial changes.
They'll also need to know more about the specific property you want to buy, which can also impact your application.
MORE FOR FIRST-TIME BUYERS
7. Budget for fees and stamp duty
You may have scraped the funds together for the deposit but there are also a whole chunk of fees you have to pay for on top.
The Chancellor scrapped stamp duty for first-time buyers in November last year although there are limits on the tax relief.
But some lenders will charge for a property valuation which can be between £150 and £1,500 base on the value of the home, according to the .
Then there's the £250 to £600 needed for a surveyor, and legal fees which are typically between £250 to £300.
How to calculate Stamp Duty
HOW we calculate stamp duty under the current system in England depends on whether the property is your first or second home.
The current system in England for residential properties means:
- You pay nothing if the property costs below £125,000
- You pay 2 per cent if it is worth between £125,001 and £250,000.
- You pay 5 per cent if between £250,001 and up to £925,000
- You pay 10 per cent if it is between £925,001 and £1.5 million
- And finally 12 per cent on anything over £1.5 million
- However, in Wales people buying houses worth more than £400,000 and £750,000 will have to pay 7.5% tax from April 1 2018.
For second homes or buy to let properties:
- Zero rate band on purchases up to £150,000
- 2 per cent on purchases between £150,001 and £250,000
- 5 per cent on purchases above £250,001
The government provides a to let you know how much you would pay on a property.
There's even a sneaky fee for simply transferring the mortgage money from the lender to the solicitor of about £40 to £50.
Don't forget estate agents take a chunk of your money too - between 1 and 3 per cent of the sale price plus 20 per cent VAT.
On the actual mortgage you're looking at forking out £99 to £250 for a booking fee, up to £2,000 on an arrangement fee and at least £150 for a mortgage valuation.
It's best to pay these fees upfront because adding them to your mortgage will leave you paying interest on them for the life of the loan.
8. Consider using a broker
More than a third of all first time buyers go directly to a bank or building society for their first mortgage, according to Trussle, but doing so could severely limit your options.
A broker will be able to review a wider range of products and advise you on the right one for your circumstances, as well as assess any hidden costs which can sometimes be difficult to find.
Remember though, they'll take a fee for their services so you'll need to factor that in to your costs.
Digital mortgage brokers like Trussle and Habito are free to use though because they take a cut from the lender, not the borrower.
They use sophisticated algorithms to scan thousand of products from over a range of lenders to find the right deal for you, quickly and without charging a fee.
9. Save for a larger deposit if you can
The more money you have, the less money you'll need to borrow and the more attractive you are to a lender.
This is because the loan to value ration is smaller and makes you less of a risk to lenders.
So if you've managed to save more money than expected, stick to your budget rather than taking out a bigger mortgage.
Also, taking time to save for longer will give you time to repair your credit rating and improve your financial footprint.
MORE ON MORTGAGES
Are you feeling a bit overwhelmed and looking for inspiration? This young couple managed to save £6,000 for a deposit in six months and they share their tips so you can do it too.
Are you a first-time buyer that wants to share your story about how you managed to do it? You should get involved in our new My First Home series.
Liam and Katie have already told us how they managed to buy their £330,000 two-bed terrace in Hemel Hempstead without ditching their luxuries.
Fancy a project? You can snap these houses up for £50,000.
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