When you are buying a property, the biggest ingredient to your successful purchase is to get a mortgage approved, but where do you start? When do you need to think about it and what can you do to give yourself the best chance of approval?
The first step is to speak to an independent mortgage adviser, such as our recommended advisers Moneysprite Solent, they will talk to you about your aims and objectives and help to get you in a position where you know what you can borrow, but there are a few things you can do yourself to get the best out of that meeting and to get the best answer.
Firstly, be prepared! Make sure you keep your payslips safe so you can access them quickly. Make sure have all your accounts information if you are self employed preferably the last 2 years and request your latest 2 years SA302`s from your accountant or HMRC, and also check that proof of ID such as passports are in date and in the correct names. These are all documents you will need to get a mortgage approved and having them at your first meeting means you will get to your answer quickly and the answer will be accurate!
Credit checks will need to be carried out to confirm your borrowing power, but the more checks you have carried out, the more damage it can do to your mystical credit score, so access your own credit report first to see what the lender will see and bring that report along to your meeting.
Most of us have been in a situation where we’ve been declined credit. It’s not the best feeling in the world, is it?
While it can be inconvenient and embarrassing to be told that the “computer says ‘no'”, it helps to understand how credit scores work. If you know that, you can work out how to improve your credit rating.
How does a credit rating work?
Your credit score will vary between banks and building societies. That’s because they all use different methods of calculating it, based on their own analysis of your credit history. Your credit report will list your credit accounts such as store cards, credit cards, mortgage, loans, car finance, your repayment record and much more. It can make all the difference between getting the mortgage you want or getting a string of puzzling rejections.
Credit ratings are determined by a combination of:
•What you disclose in your application for credit
•What is contained in your credit file
•Any previous credit history you have with the lender you are applying with
If you’re over 18 and have ever taken out a credit card, store card, catalogue account, utility bill account, mortgage or loan (apart from a student loan), then you have a credit report, which is held securely by a credit reference agency.
A credit reference agency compiles information about your credit applications and payments and sends it on to any prospective lenders (or individuals who ask for their own report). Experian (Credit Expert) is the UK’s largest, but there are others such as Equifax and Callcredit.
The mortgage that you are applying for will only be available to you if your credit score meets or exceeds the minimum level set by the lender.
If your rating is lower than this, you may be offered borrowing at a higher interest rate, or declined it altogether. The more declines you get, the worse your credit score becomes, increasing the risk of tarnishing you with an adverse, poor or bad credit label.
7 Steps to improving your credit:
1. Check your credit file
You can view this on a free trial basis or by paying a small fee. Make sure that all the information on the report is accurate, and get it removed by contacting the lender if it isn’t. If you request your report on a free trial, and you don’t need access to it after the trial period ends, remember to cancel it by setting a calendar reminder.
2. Disassociate yourself from your financial partner
When you take out a joint mortgage or joint bank account, you become “financially linked” to the person you’ve taken it out with. If they have a bad credit rating, it could impact yours. If you have split up with your partner, husband or wife and/or the joint financial product you have taken out is no longer between you both, inform the credit reference agencies of your disassociation. If not, the other person’s financial dealings could still have an impact on your credit score.
3. Get on the electoral roll
This will improve your chances of being accepted for credit. This is because prospective lenders and credit reference agencies use this to check you are who you say you are, and you live where you say you live. Ensure your credit record shows correct address details. Living at the same address, being employed in the same job (with the same employer) and having the same bank account for a reasonable period of time will also help.
4. Close unused credit cards, store cards, direct debits and mobile contracts
Lenders may consider the amount of credit you have access to, as well as the amount of debt you owe. Close all credit accounts such as credit cards, store cards, mobile contracts and accounts that you don’t use or need anymore.
5. Don’t miss or make late repayments
Missed and late payments can stay on your credit file for up to six years. If you’ve made a late payment due to circumstances beyond your control (i.e. your direct debit wasn’t set up in time), so long as you made the payment promptly when you noticed, talk to your credit provider and see if you can get this black mark removed.
6. Pay off your debts
Pay off more than just the minimum payment. This signifies good behaviour to a prospective lender.
7. Build your credit history with a credit card
If you’ve never had credit before, it’s difficult for a lender to assess you. Consider taking out a small credit card, making a couple of purchases on it each month and then repaying the balance in full at the end with a direct debit to build a good credit history. This will show that you can responsibly manage credit.
So in essence, be as prepared as possible for your first mortgage meeting, that way you will save time and give yourself the best chance of the outcome you hoped for when it comes to being able to purchase your next home. Our Moneysprite Solent adviser can help you with all your mortgage questions and needs, so get in touch today and get planning your purchase now!