7 Things You Can Improve On Your Loan
When you decide to apply for a mortgage, chances are it’s not a decision you’ve made instantaneously. You may have spent years saving for a deposit whilst keeping an eye on the housing market. Now that you’re financially able to get onto the property ladder, you’ll want to do all you can to ensure that you’re an attractive proposition for any prospective mortgage lender.
Of course, there are things that you should do long before you get to this stage. Things like having regular and stable income so that mortgage lenders know you won’t fall into arrears; paying your bills on time so that it shows you’re reliable and more likely to make regular payments and get registered on the electoral roll as it increases your credit score.
Your credit score is subject to change as a result of many things, some of which have just been discussed, and other things like using credit-building tools to give your credit history the best chances possible of being favorable to a mortgage lender.
We look at all these points in more detail as we discuss seven things you can do to improve your loan. By following our 7 point guide, you could end up owning the property of your dreams.
1. Do You Have a Regular Income and Stable Job?
So you’ve managed to save for a deposit, which you could have done over several years. Money could’ve come from work, gifts, even a lottery win! The point is, it doesn’t matter, as long as you’ve gained it legally of course!
What does count after you have reached your deposit goal, is being able to pay the loan you’re going to be borrowing after.
A deposit is typically 25% of the total amount you’re borrowing to purchase a property. It acts as security on the loan, i.e. the mortgage, you’re planning to borrow to eventually own your own home.
The lender that is providing you with this loan wants assurances that you’re going to be able to pay back the amount borrowed and part of this requires you to be in regular and stable employment for a long time.
Lenders tend to be happier with someone that is in long-term employment rather than someone that flits from job to job every couple of months. This is because lenders want to see that your income will be regular, like the kind permanent employment provides.
With this in mind, lenders are more than likely to approve your loan application if you’re in stable employment and have been for at least three months. Therefore, it may be an idea to hold off changing jobs until after your loan has been approved or waiting a while if you’re newly employed.
2. Can You Increase Your Deposit?
As we previously mentioned, your deposit will be used as security on the loan you’ll be borrowing to purchase your potential home. The larger your deposit, the better the chance of you having your mortgage application accepted. It could also open the door for more attractive mortgage offers, like better deals and lower interest rates.
Obviously, the deposit amount will vary according to many things. This includes the type of property, size of land, number of bedrooms, and location, amongst other things. A mortgage borrowing calculator will help you work out how much you will typically need to save for the type of property you want in contrast to the type of property you can afford. This is an important distinction and one that will help you plan accordingly.
Typically, you’re required to provide a deposit that’s 5% of the property’s purchase price. Although, you could qualify for a 100% mortgage if someone, like your family, is willing to act as a guarantor on your behalf. However, you need to know the risks this will entail because your failure to make regular repayments on your loan could end up with your family losing their home or worse.
3. How Well Do You Pay Your Bills on Time?
Although this should be a given, in the sense that you should pay your bills when they’re due, and before they become overdue, how many times have you been late and have needed a reminder? Or worse, how many times have you not paid a bill, for whatever, reason, and been threatened with potential legal action?
You may have breathed a sigh of relief at having paid a bill before debt recovery action was stepped up by a creditor. However, are you aware that each late payment goes on your credit record? So do missed payments.
A missed payment default will remain against you for approximately a year and, worse, still, will remain on your records for six years. You may have had a valid reason for not being able to pay a bill on time, perhaps your wages were paid late. However, the truth is, missing that mobile phone monthly bill could end up costing you a mortgage.
If you’re getting a regular income, consider setting up direct debits for all your bills to avoid not only missing or late payments, but also improving your credit rating.
4. Prepare Your Credit Record!
As you’re already aware, the better your credit report, the better chance you’ll obtain a mortgage. You’re able to obtain your credit report, free, from any of the 3 main credit agencies: Experian, Equifax, and TransUnion.
Your credit report will detail payments you’ve made to a number of places including some utility bills, like gas and water, loans, and any overdrafts.
If you see errors on it, take steps to rectify this immediately. Initial action should include contacting the lender in writing, requesting clarification, and also stating why you think there’s an error. Also, contact the credit reference and agency and see if the others have the same error recorded too.
Failure to rectify this may hinder your mortgage prospects.
In turn, if you’ve no credit history, you’ll need to build one to show you’re able to take on the responsibilities that come with having a mortgage. This could take time, during which it’s important you don’t miss any payments.
Fortunately for you, there’s a range of free credit-building tools available to you on the internet. For instance, if you’re renting you can use the Rental Exchange. It’s a free scheme that will pass on your rent to your landlord and automatically notifies Experian whenever you pay on time. This is great for providing a clear record of you making regular payments.
Alternatively, Money Saving Expert’s Credit Club is like a one-stop-shop that has a range of tools for you to work on your credit score. It shows your Experian credit score along with how much you can feasibly repay amongst other things to calculate your chances of getting a favorable mortgage.
5. Are You on the Electoral Roll?
This is most probably one of the easiest things you can do to improve your chances to gain a mortgage as it can be done anytime by contacting your local authority. Your request to be put on their electoral roll, which they’ll do as soon as they’ve verified that you live at a property in their borough.
It’s important to note that there are two kinds of register: the electoral register, or roll, and the open register. It’s the electoral register that’s used by credit reference agencies for identity checks and background checks by government departments.
The electoral register details the name and address of everyone that’s entitled to vote within a local authority. Currently, it’s an offense not to provide your information on the electoral register, punishable by a £1,000 fine, plus a criminal record.
In contrast, you don’t have to supply your details for the open register, meaning it isn’t compulsory. The open register is public, so anyone can access your information if they choose to buy a copy of this register. This register is not used for checks by credit reference agencies or mortgage lenders, and you can opt-out of being included on this register at the time of requesting to be on the electoral one.
6. How’s Your Partner’s Credit Score?
So you’ve worked hard at improving your credit score, saving for a deposit and are now at a point in your life where a mortgage is a realistic prospect. What’s more, you’re not alone, and you’re planning to settle down. Both you and your partner have saved for that deposit and are looking for a forever home.
However, did you know that if you were financially linked to a previous partner who had bad credit, this can impact these new financial plans with your new partner? This applies to joint bank accounts or a loan.
This could even apply to any joint accounts you’ve had with a previous flatmate, regardless of whether bank or utility.
It’s important you de-link yourself from them and the relevant parties are made aware of this, preferable in writing, so you have proof of notifying them.
If you don’t then any adverse credit they’ve built will reflect on your credit record. You can request a notice of disassociation from credit reference agencies.
As soon as you’re considering a mortgage, do an assessment of your current financial state. This is not concerning your credit record, but everything else. Go through your wallet or purse and see how many store cards you have. Calculate how much you have to pay on each and in total before deciding which ones you need, not want.
Do the same with your credit cards and any bank accounts. Credit cards you no longer use, work out a payment plan to clear any monies left that you owe, and then close the account. Close any dormant bank accounts too as they’re better closed than left open.
You also want to ensure you have all the correct paperwork to hand, including copies for yourself, and that they’re correctly completed too. Mistakes can cause delays and lead to a request for the resubmission of forms.
Have a list of mortgage providers you want to approach and start with your most favored. Do not apply for any other loans from any other mortgage lender until they’ve either decided to give you the said loan. This is because applying for too many mortgages at once could go against you and adversely affect your credit.
Remember, not every lender will want to loan you money. It’ll depend on how well you meet their criteria. They’ll take into consideration how much you want to borrow, the amount of deposit you have, your employment status, income, current credit rating as well as your credit history, and any current debt you have.
Applying for a mortgage is a big deal and quite rightly so. It requires a lot of planning and saving, and is rarely achieved overnight. With huge amounts of money being invested, it makes sense for lenders to be completely satisfied that their risk is minimal. It also makes sense that you want to enter into such a long-term agreement, as well.
Lenders have procedures in place to ensure that they obtain all the salient information they require to make an informed choice about whether to guarantee you a loan. Criteria may vary from lender to lender, so it’s always worth having a list of lenders you’d like to apply to, so you know what they are.
However, before it even gets to this stage, it’s you that has to put the work in to prove you can meet the regular repayments and will not default on them. It’s most people’s dream to own their own home, but few realize they have to work towards it almost immediately after leaving education. This is to possess a good credit history and one that spans over a number of years.
By following our 7 points, you’ll be able to improve on your loan and ensure that your budgeting has been successful. You’ll be able to get on the housing ladder and finally achieve the dream of owning your own home.