The process of buying a house is already one of the most stressful events in many people’s lives, and the ongoing pandemic has made this endeavor even more fraught. The course of buying your first-time property can consist of pitfalls that will make your journey to being a homeowner that little more stressful. And perhaps the most difficult part is being accepted for a mortgage.
What is a mortgage?
A mortgage loan is a secured loan in which you can avail funds by providing assets as collateral, and the lender keeps the assets as collateral until the borrower (i.e., you) repays the total loan amount. If you are thinking of applying for a mortgage, you should be aware that there are certain factors that may affect your eligibility. Almost 50% of prospective first-time buyers get rejected during their mortgage application process, with studies showing those who are contractors or self-employed suffering the highest rejection rates.
As of March 2021, the average price of properties in the UK stood at £256,000, and the challenge only becomes more difficult as property options decrease, yet the price rates keep rising. If you’re a first-time buyer in need of mortgage advice, We Buy Any House has comprised a list of 10 things to consider when applying for a first-time mortgage.
1- Understand How Much You Can Afford:
It may seem like an obvious one, but before you even start house-hunting it’s important to understand and work out how much you can realistically afford for a property. Going way above a logical price bracket will only result in mortgage lenders rejecting your application and leaving you back at sqaure one. Generally, you can borrow four-and-a-half times more than your annual income, so this is a good place to start working out how to be property cost effective.
2- Save a Deposit:
It’s worthwhile to save a cash deposit. The greater savings you can contribute towards your property purchase, the less you will need to borrow and repay throughout your mortgage. Furthermore, saving a deposit will also mean you are likely to have a lower value ratio on your property, reducing the risk of negative equity- which is essentially when your property becomes worth less than the remaining value of your mortgage.
3- Have Deposit Evidence:
Saving as much as you can for a deposit is great, but ultimately, the lender will want proof of your deposit and how you accumulated the money. If you opted to gradually save the money, the lender will want to see evidence of saving patterns, including a minimum of three months’ worth of bank statements. If given the money as a gift or donation, then a letter must be provided from the donor- but if the donor expects repayment, you must be aware that the lender may count this as a debt and factor it into your affordability.
4- Scheme Eligibility:
There are a multitude of schemes that exist to help first-time buyers purchase their property. While the goal is to make becoming a homeowner as simple and accessible as possible for first-time buyers, you should be aware that schemes often come with expectations from aspiring owners- ones which should be fully understood. Schemes such as ‘Help to Buy Equity Loan’, ‘Help to Buy ISA’ and ‘Affordable Housing Schemes’ each tend to have their own rules. Conducting research into whether you qualify for scheme eligibility is worthwhile, as it can help progress the property buying process.
5- Check Your Credit:
Alongside your affordability, lenders will want to know how creditworthy prospective buyers are. Therefore, they will ask to check your credit score. Your credit score can be impacted by several things, from the way you pay your bills, to the way you use your credit card each month. To avoid an unpleasant surprise, keep track of your credit score and build good credit history well in advance of applying for a mortgage.
6- Budget a Solicitor:
The mortgage deposit for a house is often the biggest hurdle but remember that you will also need to budget for other expenses of buying a property. Some mortgage applications have a compulsory fee which may be in excess of around £1,000- and in addition to paying this fee, your solicitor payments and house survey costs will also be required.
7- Ask Your Family:
The task of applying for a mortgage can be daunting- especially for first-time buyers. If you’re struggling to gather a deposit, then it’s worth asking for help from your family. Finding alternative and helpful options are probably for the best, so you aren’t panicking last minute. However, although guarantor mortgages or offset mortgages may seem like a good idea in theory, they come with their own risks so it’s best to sit down with relatives and work out financial boundaries. Furthermore, buying a house with someone else is also a good idea as it dramatically reduces the pressure to reach financial targets,
8- Update Your Details:
Applying for a mortgage involves a lot of paperwork, and every detail needs to be checked by lenders. Any existing discrepancies, no matter how small could result in your application either being delayed or rejected. Due to this, it is vital that all paperwork information is updated, from addresses to driving licenses- ensure everything matches on the electoral roll. Once you have submitted the application it may be a delayed process to change information such as the amount you are asking for. Take time and consider each part of the application paperwork carefully.
9- Proof of Income:
It is ideal to have a lengthy employment before you apply for a mortgage- preferably with the same company. This proves to the lender that you are earning a consistent income. If you’re thinking of changing jobs then its perhaps a good idea to wait at least three to six months before applying, as applying for a mortgage during a probationary period can lengthen the application process as the lender will have to reconfirm and double check you will be able to cover mortgage payments. Most lenders will want proof of employment too, so providing a P60 and summary of tax deductions is necessary. If you are self-employed, then you may need to seek a SA302 for relating to the last three years from HMRC.
10- No Debts:
If you’re thinking about submitting a mortgage application, the last thing prospective lenders want to see are outstanding loans, or money that is owed on credit cards. Before applying, aim to reduce outstanding debts, to demonstrate that you can manage money responsibly and will enhance your chances of your mortgage application succeeding.
