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Applying for a mortgage and repairing your credit
Mortgage Lenders
When you first apply for a mortgage, a mortgage lender has to make sure that you can afford your monthly repayments. They will begin by adding up your income including any benefits and then take all your outgoings such as bills, loans and credit cards into account in order to make sure that you have enough left over to cover the monthly mortgage repayments.
They will also undertake a 'stress test’, which decides whether you would still be able to afford the mortgage if interest rates were to rise or if your financial situation were to change slightly. They will also run a credit report looking at your financial history.
Preparing your application
Before you apply for a mortgage, it is important to contact some credit reference agencies and order your credit reports. You will also need various different documents for the application including:
The last 3 months payslips
A P60 from your employer
Bank statements of your current account and savings accounts for the last three months
Proof of benefits
If you're self employed a statement of 2-3 years' accounts from your accountant as well as a tax return form
Utility bills
Passport or driving licence (to prove your identity)
It is extremely important to make sure all the details you provide are accurate and also provide details of the address of the property, the estate agent and your solicitor.
Speak to an expert
Mortgages can be confusing and there are various different ones to compare. It's important to speak to an expert so you can choose the right mortgage for you. This could be a lenders' advisor, mortgage broker or a financial advisor.
Comparison websites are also a great starting point for anyone trying to find a mortgage perfect for them.
The total cost
A mortgage lender or broker will work this out but it's wise to make sure they fully explain the charges and fees such as early repayment penalties. Some mortgage brokers won't charge for advice and bank advisers will also give you advice for free.
Re-mortgaging
If you want to increase the size of your mortgage you will have to go through the affordability checks as above once more. You will then be given advice on which mortgage product suits you best.
Repairing your credit
Your credit rating is used to help lenders decide whether or not to lend you money, its interest and how much you can borrow. A poor credit score can affect your ability to borrow money but there are a number of things you can do to fix it.
Below are just some of the ways your credit score could be negatively affected:
High levels of existing debt
Making late payments on any bills or loans
Applying for lots of credit at once. (If you want to compare rates, undertake a quotation search)
Opening credit cards that you never use
Not being on the electoral register
Moving home a lot in a short space of time
It is advised that you check your credit report and fix any mistakes you see. You can also add a notice of correction to your report if there is information that doesn't reflect your current situation. For example - if you lost your job and in turn got into debt but are now out of that debt and working again.
There are a number of things you can do to improve your credit score, including:
Stop applying for credit for the time being
Get on the electoral register
Cancel any unused credit cards
Pay any bills on time
Avoid expensive credit repair companies - you can repair your credit yourself so don't pay someone else to do it.
The subject of mortgages and your credit score is scary and it's the unknown that confuses people as well as the jargon used. However with this guide, we've shown you that it doesn't have to be this way and once you've mastered mortgages, you'll be well on your way to your dream property. If you would like some more advice, then get in touch today.
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