If you are thinking about applying for a mortgage, but are concerned about how well qualified you might be, there are plenty of steps you can take to build up a clearer picture. The first thing to do is check your credit report, because this will be one of the tools lenders use to assess how much risk you represent to them.
Your credit record is held by credit reference agencies, such as Experian, Equifax, and TransUnion. They collect data on your record of meeting loan repayments, paying utility bills on time, and whether you have any Individual Voluntary Arrangements, Debt Management Plans, County Court Judgements, or bankruptcy cases.
This data is passed onto banks and other financial institutions. One of the purposes is to combat fraud and money laundering, identify tax evasion and benefit fraud. Another purpose is to help lenders see how financially responsible loan applicants are at managing their money.
A poor credit record won’t automatically exclude you from getting a mortgage, but mainstream lenders will approach you with caution. This is because they are risk-averse, and they will conclude from your history that you have a higher probability of not meeting your mortgage repayments.
It’s never too late to start improving your credit score, and in fact, you don’t even have one consistent score across all agencies. Small changes can make a difference, such as setting up direct debits rather than waiting until a bill arrives to make payments. Plan a monthly budget, so that you are living within your means, and avoid making new loan requests.
Lenders don’t just look at your credit record; they will take into account your current income and outgoings. Typically, they will ask to see bank statements dating back at least three months, so be prepared for this in the months leading up to your mortgage application. It helps to know exactly what the lenders will be looking out for.
Some of these will be the same as other credit checks; whether you are making regular direct debit payments and loan repayments in full and on time. They will also check for any significant regular outgoings you haven’t disclosed, such as a car loan or child maintenance payments, so it’s important to be upfront and honest about your financial commitments.
More generally, your bank statement will be used to assess whether your income and outgoings and general lifestyle mean that you can reasonably afford the mortgage repayments. Therefore, it pays to trim back on luxuries, from a daily latte to frequent holidays abroad.
Other red flags include payday loans, which suggest that you often live beyond your means. If you regularly gamble large amounts of money, this will not be viewed favourably, even if you are on a winning streak. Finally, if you make regular payments to undisclosed sources, or often withdraw lump sums of cash, you will need to have a good explanation for this.
If you are looking for IVA mortgage specialists, please talk to us today.
Your home may be repossessed if you do not keep up with your mortgage repayments.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is £595.
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Create Finance Limited is an appointed representative of Mortgage Advice Bureau (Derby) Limited which is authorised and regulated by the Financial Conduct Authority.
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Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is £595.
The guidance and/or advice contained within this website is subject to the UK regulatory regime, and is therefore targeted at consumers based in the UK. The actual rate available will depend upon your circumstances. Ask for a personalised illustration.
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