Speaking with clients the one area they all seem genuinely confused over is "what exactly will the lender be looking for in my application and will I be able to get a mortgage?". Whilst not exactly a dark art, it is a very complex area and no wonder that we often see clients who have tried to do it on line themselves and failed dismally. Hopefully by investing the next five minutes of your life in reading this post I can unravel some of the mysteries and give you some pointers to what your Mortgage Broker will need to help your application sail through!
It has to be remembered that nearly every lender has different criteria as to what is and is not acceptable to them and this is one of the vital areas that your brokers knowledge will help steer you through.
1) Credit Report. Many clients think that getting their own credit report puts a footprint on their file that prospective lenders will consider to be bad.
Having sight of your credit profile before submitting an application can save a lot of time and effort and can prevent putting an application to an unsuitable lender for the individuals circumstances. Too many applications for credit (successful or not) in the six to twelve months prior to application for mortgage will invariably have a detrimental effect on your credit status.
2) Bank Statements. It might not seem obvious, but not keeping your bank account looking healthy is one of the areas many applications will fall down on. Have you exceeded your overdraft limit more than once in the last year without an excellent reason? Have you had a payment returned due to insufficient funds in your account? Are you always right up against your overdraft limit each month?
Applying for a mortgage is not usually something that springs up on you, there will invariably have been quite a lot of thought and discussion over the matter offering a lengthy lead in period. So start early and try to keep your bank account in really good order. Lenders don't like to see prospective borrowers living beyond their means. Try to keep well within overdraft limits so there is always a decent level of headroom when your next salary hits your account and always make sure you have adequate funds available to meet your outgoings.
3) Pay Slips. You would be astonished how often I have to tell a client that the last three months pay slips means exactly that, not any 3 from the last 5 months as you cannot find a couple of them! Most lenders will want to see your latest 3 pay slips and your latest P60. They will also want sight of corresponding bank statements that your salary has been mandated to. For the Self Employed and Company Directors with more than a 20% shareholding they will expect to see your last 3 years on line tax calculations AND the last 3 years Tax Year Overview taken from HMRC web site. This will not be negotiable. Some lenders may no longer wish to see your accounts as they prove very little...what you have paid to HMRC though says a lot!
4) Credit Cards and Loans. Once again, quite an obvious one really, but make certain that you ALWAYS and without fail keep your repayments up to date and on time. Set your credit cards up to either clear the balance or to make the minimum payment by Direct Debit. That way the payment is always taken and in plenty of time. With your loans make certain that there is always adequate money in your account to ensure that the payments will be taken. Also try not to have too many credit cards. We often see clients with 5 or 6 cards each with a credit limit of £5,000 plus. If you stop and think about it 6 cards each with a £5,000 limit means that you have potentially the ability to borrow a further £30,000 which if you assume a minimum payment of 3% (although this will vary from provider to provider) that is a further £900 a month potential commitment. Something that most lenders will frown upon! Try to have no more than two or three cards as a maximum ideally keeping the credit limit no more than £8,000. A final point whilst looking at Credit agreements, PAYDAY LOANS...just one word "DON'T!" If you are considering applying for a mortgage and you have taken out a Payday loan at ANY time in the past you will have seriously reduced your chances of getting mortgage finance and certainly you will stand little or no chance of obtaining a mortgage through a High Street lender. Sorry, but those are the hard facts. Mortgage Lenders do not like the idea of advancing 10's of thousands of pounds to a person who has run out of money at the end of the month and has to resort to companies who will charge ridiculously high rates of interest. It just is not good business sense!
5) Finally, and as we have already discussed, applying for a mortgage is NOT a spur of the moment decision. It is something that will have been considered for quite a while beforehand. Try to avoid applying for any credit between the time you make the decision to start looking for your new home until such time as you have actually moved in. This way, you will be able to judge whether or not that new purchase will be affordable or whether it would be better to just save so you can buy it with cash.
Whilst these ideas will not guarantee a successful mortgage application, they will go a very long way towards helping you get the mortgage you require!