Choosing to buy a property is one of the most important decisions of your adult life so it is key to be properly prepared. Before applying for a mortgage, make sure to consider taking the following steps to make sure that you are maximising your chances of approval.
Boost your credit score
Before applying for a mortgage, it is important to familiarise yourself with your credit score. The majority of mortgage providers will use this information to determine whether or not to approve you for a mortgage and at what conditions. In general, the higher your credit score, the better your chances of approval will be and the more likely you are to receive the most favourable rates.
You can check your credit report by contacting one of the major credit bureaus. Through this process, you can see what mortgage providers are able to see and flag any areas of concern. If there are any errors, this is your opportunity to contact the credit reporting company to get these removed.
Errors may include inaccurate information, paid debts stated as unpaid, identify theft or being financially linked to someone that you are no longer involved with. These errors are fairly commonplace but could easily have a negative impact on your credit score. Getting them fixed can boost your credit score before approaching mortgage lenders.
Pay off your debts
One action you can take before approaching mortgage providers is to pay off any outstanding debts. Typically, mortgage lenders will look at your debt-to-income ratio; the amount of debt you have monthly relative to your income.
Mortgage providers tend to use this as an important metric when determining whether or not you can afford to repay your mortgage. This is important because if you want to buy or sell a house fast, you will need a mortgage lender to view your financial position more favourably.
If your ratio is high, it shows that your debts are already high and taking on another debt may add financial strain – this would mean that you are less likely to be approved for a mortgage. Before applying for a mortgage, try to pay off as much of your existing debt as possible in order to reduce your debt-to-income ratio.
Save for a down payment
It can be frustrating but sometimes waiting longer to apply for a mortgage can serve you in good stead. Waiting to apply and using that time to save for a higher down payment could broaden the options available to you. A higher down payment from the buyer means a lower risk for the mortgage provider; this makes you more likely to receive approval and can better the conditions of your mortgage. You are also likely to gain access to mortgages of a higher amount which will widen your pool of homes available.
Another key factor for this is to reduce your expenses in the months leading up to your mortgage application. Not only will this help you save money to put towards your mortgage deposit, it will also present you as a more responsible borrower. Mortgage providers typically look at credit utilisation – the amount of credit you have available versus the amount of credit you are spending monthly. The lower this figure is, the more responsible you will appear to mortgage lenders.
Demonstrate job stability
Mortgage lenders tend to view applicants in stable jobs and long-term employment more favourably. Before applying for a mortgage, it is recommended that you have been with your current employer for at least 3 months, whether that be in a job selling wholesale cleaning supplies, as an investment banker or anything else.
Those who have recently started a new job should hold off before applying for a mortgage; the longer that you have been with a company, the more job stability you portray to lenders.
For those who are self-employed, it is not impossible to be approved for a mortgage but it can be more challenging. Typically, lenders will ask for detailed documentation of your income and you will need to demonstrate at least two years of stable income.