Securing a mortgage will probably be the biggest financial commitment of your life. So, it’s completely normal to feel a little apprehensive and have lots of questions. The old saying goes: “It’ll never feel like the right time to buy”.
You can feel more confident in the process if you prepare for your mortgage application in the months or even years beforehand. We’ve provided some hints and tips below to get yourself better prepared.
Save for a deposit
Mortgages don’t come cheap. Most mortgage lenders will require at least a 20% deposit on the price of the property you want to buy. This means you’d need £60,000 upfront to buy a £300,000 home – and a little more to cover other fees.
And if you’re buying a property as a rental investment, you’ll need a buy-to-let mortgage. Because lenders consider these mortgages riskier, you often need at least a 40% deposit on the property purchase price.
The bigger deposit you can put down the lower the Loan to Value (LTV) ratio on your mortgage. Lenders reserve the lowest interest rates on mortgages with lower LTVs, so saving for a bigger deposit can save you money.
Consider government schemes
Sometimes there is a shortcut to buying your first home without having to save a large deposit or be subject to a higher interest rate. The UK Government often runs different schemes to specifically help first-time buyers get on the property ladder with a smaller deposit.
These schemes are subject to change frequently, but at the time of writing, there is a scheme that will let first-time buyers purchase a property with a deposit of just 5%. Check to see what government schemes are available at the time of reading!
Pay attention to your credit score
Mortgage lenders will analyse your credit file to see how you have handled bills and credit repayment previously. They’ll be able to see if you’ve always paid on time, or if you have defaulted on your credit before.
It’s important to try and enhance your credit score in the lead up to your mortgage application. This could help you get approved or secure a better rate. Some top tips to improve your score include:
- Register on the electoral roll
- Reduce your existing credit utilisation to below 30%
- Keep paying bills on time
- Search for credit file errors and have any removed
- Avoid multiple credit applications
Mortgage in principle
Once you’ve saved a deposit and taken care of your credit score, you can ask lenders for a mortgage in principle. This is when a lender agrees on the size of a mortgage you can access with them and will be useful when you start searching for properties.
With a mortgage in principle, you’ll know what type of properties you can afford, and the ones you can’t. You’re not obligated to take out the mortgage just because you received a mortgage in principle.
Speak with a mortgage broker
Speaking with a mortgage broker will help you understand the different types of residential mortgages, which can be especially confusing when you’re a first-time buyer. They’ll be able to assist you in searching for the most suitable mortgages to find the better deals.
Contact Moneysprite today. We help lots of solos and couples dreaming of their first home.