Things you need to do before applying for a Mortgage

Thinking of getting a mortgage soon? There are certain things you need to do before applying for a mortgage whether you are going at it alone, with family or a partner. It is almost a year since I applied for a mortgage for my current home and almost a year since I moved into my very own home as a first time buyer. The entire process felt like it was taking longer than it should but in actuality it was only a few short weeks.

Before you even start thinking about what kind of house you want to purchase there are certain things you need to do before applying for a mortgage. When I decided that I want to purchase my own home, it took me over 5 years to plan everything and thankfully it paid off when it came to buying my first property. It is not just about saving up for the deposit, its a whole host of things that you need to consider before hand.

Disclaimer – I am not a mortgage or financial advisor

Things You Need to do Before Applying for a Mortgage

Buying a house is an incredible milestone in one’s life and a huge financial commitment especially if you are going down the route of getting a mortgage. If financially you don’t need a mortgage then most of this will not be relevant to you but if you are then read on. Before I made this financial commitment I weighed the pros and cons of buying a house versus renting and decided for me it was before to buy than rent.

If, after weigh your pros and cons and decide that buying a mortgage makes financial sense to you than renting then you need to buckle up and understand the financial impact having a mortgage will have you or income. Thankfully for me, this is something I considered and prepared for long before I bought my first property. There are other things that you need to consider as you start thinking about applying for a mortgage.

Review and Update your Credit File

This is one of the most important things you need to do before you start thinking about applying for any sort of credit. Due to the financial mistakes I made as a young adult, these caused an issue on my credit file that I needed to repair. It is so important to be aware of what creditors are looking at when they consider whether they can lender you money or you are too much of a high risk.

First thing is to check your credit file, I use the big 3 – Equifax (where everyone gets the information from), Experian (whom every lender runs to and love) and ClearScore (your free best friend that gives you the download on yourself). It is so important to check what is currently on your credit file and next step is to work on correcting any errors that you notice. It also gives you and idea of how lenders view you (low, moderate, high risk) when deciding whether to lend you money or not.

Pay off or Reduce your debt

If you have debt, reviewing your credit file gives you an idea of what your credit score is and some of the debt that is impacting your score. I have a credit card, Klarna loan and car finance, these are the only ‘debt’ I have but they are all very low. When I used to owe more money, my file used to say ‘you have borrowed more than you can afford’ and tagged my file as high risk.

For many years I worked hard to repair my credit file by paying off my debt and/or reduce it to lower amounts. For my credit card, I don’t spend more than 30% of my balance and I also refuse credit limit increases because I know its too much of a temptation for me. For Klarna and my car, I pay my monthly repayment on time and never miss a payment this credits a ‘good impression’ on my credit file. Work on paying off or reducing your bills.

Register to Vote

I never truly understood the importance of ensuring you are an electoral roll role until I wanted to apply for credit. Being on the electoral role is something that credit companies and especially mortgage lenders check. For them is all about proving your identity and for fraud purposes. Make sure you check your details are correct and you are registered to at least one electoral roll.

Pay all your bills on time

Paying your bills on time is a good indicator to the lenders that you can be trusted to make payments on the money they lend you. Paying your bills on time reflects good on your credit report thereby increasing your credit score. Whilst lenders all use different systems to decide whether to lend you money or not, they all look at your historical record when it comes to paying your bills. One thing I learned from money issues is that defaults on your credit file last a whole 6 years which can make lenders not want to lend you money.

Save a larger deposit

When I started looking at buying a house, I performed an affordability assessment on myself and realised for the type of house I wanted, I need to save up at least £20k + another £10k for other costs associated with home buying. There are so many things I wish someone had told me about before I started the process of buying a house on my own. Saving a larger deposit than 10% is the best policy.

If you are looking to buy a property worse £200,000, 10% is £20,000 which is a lot of money but you need to save at least £30,000 to ensure you get a good mortgage offer. Plus all the costs associated with it which are so huge, stamp duty alone is like £3000, the lawyers about £2000 and so many most costs. Save you a lot more than they tell you so you can have more money for the unexpected costs.

And there you have it, these are some of the things you need to know before applying for a mortgage. Other important things to know about is getting a mortgage in principle (this is where a lender tells you how much they can possibly lend you given the financial information and history you have provided – but is not a guarantee), use a mortgage advisor – helps you explore your options and available lenders to know based on your financial history and affordability.