If you are buying a home for the first time, taking out a mortgage is likely to be the single most important financial decision you will ever make. But, before you get started on your road to homeownership, there are several things you should know that will significantly improve the chances of your loan application getting approved.
We have rounded up five of these top tips that would help make your home loan application hitch-free.
How Much Do You Have Saved Up?
Before starting the mortgage application process, you will need to have some money saved up that would be used to make the initial deposit on your dream home.
Virtually every mortgage provider will demand to see proof of your deposit, as this will help them determine how committed you are to the house purchase. In fact, the more money you can produce to put down as a deposit, the better your chances of securing a good mortgage deal. This is because a bigger deposit means you will benefit from lower monthly repayments and a few other incentives.
Deposits typically range from 5% to 15% depending on your credit history, price of the property and mortgage type. However, if you qualify for a Help to Buy Scheme, you can get what you need with a smaller deposit. This is something worth looking into if you are struggling to save up a larger deposit.
Your Credit Score Matters
As a first-time buyer, any mortgage provider will scrutinise your credit history and score to determine if you are a debt risk before even considering your application. This is one of the reasons why it’s advised that people keep a good credit score.
The higher your credit score, the better your chances of scoring a good mortgage deal, but where you have a poor or average credit score, you may have to settle for a less than ideal offer.
The first step is to request a credit report from your credit provider and check to see that everything is as it should be. If you have a less than ideal credit score, there are several helpful guides and tips on how to manage and improve your credit rating online.
Stamp Duty Requirements
In November 2017, first-time buyers looking to purchase property that cost less than £300,000 were granted a waiver from having to pay Stamp Duty Land Tax. This essentially means that if you are looking at a property of £500,000 and below, you will be exempted from paying stamp duty on the first £300,000, but will be expected to pay 2% on the balance. The normal stamp duty rate, however, applied for properties above £500,000.
This is another cost consideration that can affect your overall budget; therefore, you need to calculate your stamp duty charge based on the cost of the property before commencing.
You, Will, Need Proof of Income
Most mortgage providers will not consider your application unless you can show some form of proof of income. This is what will help them determine if you have the means to meet your repayment obligations. In most cases, you will be requested to provide a P60 form, bank statements, work payslips or an SA302 form if you are self-employed.
If you cannot provide these details, it’s unlikely your loan application will be approved. This is because the bank will see you have no reliable monthly income as a basis for making your mortgage repayments.
Debts Will Hurt Your Application
No matter how much you need your own home if your finances look bad on paper, your chances of securing a loan reduce significantly. This is because no mortgage provider will consider a loan application where the applicant has a huge chunk of unpaid loans or credit card debt.
Therefore, you should make every effort to tidy up your finances before applying for any form of loan, because no matter how you try to hide it, banks, mortgage companies and other financial institutions have a way of finding out how reliable you are when it comes to paying back loans.
If you have a history of not paying back what you owe, it is highly unlikely that any lender is going to approve your application.