Six things you need to do before you get a mortgage
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Getting a mortgage can be a complicated business. Hertfordshire-born mortgage advisor Sam Norris has six tips to help make the process less painful.
1. Be credit ready
Make sure you check your credit score and history. You are applying for probably the biggest financial commitment of your life. You need to ensure that there is nothing on your credit file that may mean you are viewed as a risk to your prospective lender. Make sure you are:
- Up to date on all your payments to existing loans and credit cards
- Not constantly using your overdraft
You may also want to watch:
- On the electoral roll at your home
These are all parts of your credit file that the banks will be interested in.
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2. Be ready for the extra costs
Most people, when they begin saving for a new home, will say they are saving for a deposit - but there are other associated costs which you must also consider. First of all, when you are applying for a mortgage, there are, more often than not, application fees. These can be as little as £199, or may even run into the thousands, depending on the type of mortgage you are taking out. In addition, with most mortgage applications, there will be a charge for a valuation of the property which needs to be carried out. There are also solicitor costs, removal costs, and the big one: stamp duty land tax!
3. Remember: Size matters
On the point of costs, the amount you are able to put down as a deposit will make a big difference as to the kind of mortgage you can take out. The bigger the better is the rule of thumb. You can get a mortgage with as little as a 5 per cent deposit, but lenders see these deals as a bigger risk, and so they come with a higher rate.
To access the best rates on the market you will need as much as a 40 per cent deposit. These rates are the ones you usually see advertised in papers and at bus stops with eye popping low rates.
4. Think about your future plans
We have all seen adverts for headline mortgage rates, but how many think about whether this type of mortgage is the best for their circumstances? Do you want to fix your rate, and if so, for how long?
If you are looking to move house again in three years, then applying for a five-year fixed rate will not allow you to do so. Do you fix your rate, or look at a variable rate mortgage, like a tracker, which will move along with the Bank of England Base Rate? What length of mortgage term do you want, and do you want to repay the loan as you go, on a repayment basis, or just pay interest?
You could even set up an offset mortgage, and use your savings to keep your mortgage payments low. There is more choice than people realise, so it is essential to think of the future and what works best for your circumstances.
5. Prepare for paperwork
With any mortgage application comes paperwork. It pays to know ahead of making an application what you will need so you can prepare yourself and stop any unnecessary delays.
If you are employed, a mortgage lender can ask for up to your three most recent payslips to prove your income. Some may ask for less, but this is standard. If you’re self-employed, you may need to show a lender your last three years of business accounts.
They will also ask for your last three bank statements, so they can see your pay hitting your account, as well as ensure you are running your personal finances well.
A payday loan may flag up that you are poor at managing your finances, and therefore a greater risk to lend to. If you are buying a new home, you will need to provide proof of your deposit, usually through a savings account statement. Most lenders will also need proof of ID and address. It is a good idea to gather all of these documents into a file, ready to be produced when asked for.
6. Get advice
There is no need to go it alone, in a marketplace more complex than ever. The ‘one size fits all’ approach of the financial comparison sites can leave you more confused than when you started.
Seek the advice of a mortgage professional who can help you negotiate the potential pitfalls, get you mortgage-ready, and give you peace of mind that you are getting the most cost-effective deal for your circumstances.
Follow Sam on Twitter @Samsmortgages